Dexter Inc is a small distributor of specialized industrial tools located in Cahir, County Tipperary, Ireland. They work with hundreds of manufacturers that provide them with products that they in turn sell to their thousands of customers. One item they sell is the Left Handed Monkey Wrench, or SKU WML999 that is manufactured by Wilson Worldwide. The WML999 is a steady seller for Dexter Inc. They have been selling them for several decades and the demand has been remarkably constant and stable with no variation, trend or seasonality.
The average demand for Left Handed Monkey Wrenches is 260 units per year. The cost to Dexter Inc for the Left Handed Monkey Wrench is 72 $/item and they sell them for 112 $/item to their customers. It costs just 5 $/order for Dexter Inc. to place an order to Wilson Worldwide and the lead time is 1 week. Dexter’s annual inventory holding cost is 20% and for this problem assume there are 52 weeks per year.
You want to develop an inventory policy for ordering the Left Handed Monkey Wrench that minimizes total costs. The policy will be in the form of “Order Q units of Left Handed Monkey Wrenches when the Inventory Position is equal to s”.
What value for Q do you recommend?
What value for s do you recommend?
Unfortunately, Wilson Worldwide has recently changed its ordering policy and is requiring all orders for Left Handed Monkey Wrenches to be in cases of 25 each. You cannot order partial cases.
What is your new inventory policy for ordering the cases of Left Handed Monkey Wrenches that minimizes total costs. The policy will be in the form of “Order Q CASES of Left Handed Monkey Wrenches when the Inventory Position is equal to s UNITS”. Notice that while you need to order in CASES your value for s should remain in UNITS of individual Left Handed Moneky Wrenches.
What value for Q (IN NUMBER OF CASES) do you recommend?
What value for s (IN NUMBER OF UNITS) do you recommend?