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The need of a company is 16000 units/year, demand is constant throughout the year, ordering cost is $25 per order, and the holding cost is 20% per unit. These suppliers below are offering discount. So which of the two suppliers should be selected to minimize total inventory cost, and what would be the inventory cost?

supplier A supplier B

Quantity Price Quantity Price
1-199 38.40 1-299 39.50
200-499 35.60 300-999 35.40
500 or more 34.70 1000 or more 34.60

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Solution Summary

In this tutorial, inventory costs are evaluated. The minimized total inventory costs are provided.

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Please see below and the attached document.

The attached spreadsheet shows the total inventory cost under each supplier, based on the number of units per shipments (in increments of 20 units). We see that the lowest total inventory cost ($557,460) is achieved by using Supplier B, and making 16 orders of 1,000 units each per ...

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