According to the sales record at HEB, the monthly demand for Emerson electric crockpot is certainly 25 units. HEB pays $30 for each crockpot at the wholesale level. Shipping and handling as well as other overhead expenses related to placing an order is $15. The quarterly carrying cost to hold one crockpot is 2% of the purchase cost. Under normal circumstances, Emerson would deliver an order from its local warehouse to a store in exactly 10 days.
Which FOQ inventory model should we use for the analysis here? What are the optimal order quantity and reorder point based on this FOQ inventory policy? What is the optimal (corresponding) annual total cost for this inventory policy? Assume that the HEB store opens 365 days in a year.
Answer: Optimal order size (Q) is 61 units; optimal reorder level (R) is 8 units; optimal annual total cost (TC) is $9146.97.
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