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Inventory Management

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Anne Beck recently took over a beauty supply store. Her predecessor always ordered shampoo in quantities of 100 units. Anne is reevaluating this policy. Based on her analysis, the cost to place each order is $35 and the holding cost is $8 per shampoo bottle per year. The annual demand for this product is 2500 bottles. Should Anne change the current order policy and, if so, how much can she save?

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Solution Summary

Solution calculates the money that Anne can save by changing her inventory policy.

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Current inventory policy parameters:

Number of orders=Total demand/bottles per order=2500/100=25
Annual ordering cost=number of orders*cost per order=25*35 =$875
Average inventory=100/2=50 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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