You work for a company that supplies widgets in the Atlanta area, with demand of 500 units per month. The fixed order cost is $400 per order. The holding cost rate is $0.20 per unit per month. In addition, you rent a warehouse to store product and the warehouse charges you $1 per square foot per month. The widgets occupy one square foot per 10 units.
a) What is your optimal order quantity?
b) How much space do you need to rent?
c) What is the order cycle?
d) Suppose you want to use the warehouse to also store strategic safety inventory. You must now hold a minimum of 500 units in storage at all times. What is your new order quantity?
e) How much space should you rent now?
f) How much is the holding cost now?