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Solution_ Homework6_Inventory Management

Solution_ Homework6_Inventory Management - 311 Operations...

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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 start-up 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, humidity-controlled 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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