A North Face Retail Store in Chicago sells 500 jackets each month. Each jacket costs the store $100 and the
company has an annual holding cost of 25%. The fixed cost of a replenishment order (including transportation) is $100. The store currently places a replenishment order every month for 500 jackets.
What is the annual holding and ordering costs? On average, how long does a jacket spend in inventory?
If the retail store wants to minimize ordering and holding costs, what order size do you recommend?
How much would the optimal order reduce holding and ordering cost relative to the current policy?