311 Operations Management
Fall 2008
Solution: Homework # 6 – Inventory Management
1.
(30 points; 5 points per part)
A company provides free tea to their employees by
sourcing their tea supplies from Trojan Tea, a new startup run by Marshall
students. Trojan Tea has promised to supply the company 50 pounds of their
specialty loose leaf weekly, for 52 weeks per year. Trojan Tea, in turn,
purchases their tea from a niche Indian supplier for $10.00 per pound. The
shipping cost per order is $40.
Tea storage must be done in a customized,
humiditycontrolled environment, and storage costs are estimated to be $2 per
pound per year. Currently, Trojan Tea places an order every 4 weeks.
a.
What is the current annual order cost?
52/4*40 = 520
b.
What is the current storage cost?
50*4/2*2 = 200
c.
What is the optimal order quantity for Trojans Tea?
pounds
322
2
40
*
50
*
52
*
2
2
=
=
=
H
DS
EOQ
d.
How many orders are placed per year?
52*50/322 = 8.06
e.
Trojan Tea realizes that holding tea inventory ties up cash and its holding
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 Fall '08
 HIROSHIOCHIUMI
 Management, Normal Distribution, Standard Deviation, Probability theory, probability density function, Trojan Tea

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