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Inventory Control

The warehouse manager on a construction is trying to figure out a rational way to control inventory for several parts and has asked for your help. The first part is a particular type of valve actuator. It is contained in the material management system and the projections are that they will be installed at a rather steady rate over the next year of the project of 50 actuators per week with a standard deviation of 2 actuators per week. The only real problem here is that the packaging is bulky and each actuator is packaged individually. Since space is at a premium in the warehouse, the warehouse manager estimates it costs $5/week to hold each unit and the vendor charges $100 every time an order is placed. Orders placed before 12 noon one day are delivered before 12 noon the next so lead time is essentially instantaneous. Stocking out of this item is just not an option - it can't happen.

- Using the EOQ, what is the cost optimal order strategy that meets the design requirements?
- What order frequency would you use to achieve a really good but not necessarily cost optimal solution that meets the other design requirements if the supplier requires orders in multiples of 10 and only accepts orders on Monday and Thursday for delivery on Tuesday and Friday.

Solution Summary

The solution provides a detailed answer for the cost optimal order strategy and the order frequency. Clear step by step answer is included.

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