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QUESTION

# A beer distributor finds that it sells on average 100 cases a week of regular 12-oz. Budweiser.For this problem assume that demand occurs at a...

A beer distributor finds that it sells on average 100 cases a week of regular 12-oz. Budweiser. For this problem assume that demand occurs at a constant rate over a 50-week year. The distributor currently purchases beer at a cost of \$8 per case. The inventory-related holding cost (capital, insurance, etc.) for the distributor equals 25 percent of the dollar value of inventory per year. Each order placed with the supplier costs the distributor \$10. This cost includes labor, forms, postage, and so forth. [Note that the holding cost rate is 25% per year, you need to convert that to percentage per week.]

(a)  Assume the distributor can choose any order quantity it wishes. What order quantity minimizes the distributor's total inventory-related costs (holding and ordering)?

(b)  What is the order cycle time?

(c)  How many orders does the distributor place every year?

(d)  What is the inventory-related cost per case of beer sold?

For part e, f and g, suppose the Brewer just opened a plant right next door to the distributor. Beers are now shipped through conveyors to the distributor cases by case as they come off the production line. Suppose the production rate is 150 cases a week (All other parameters remain unchanged from part a).

(a)  What order quantity minimizes the distributor's total inventory-related costs?

(b)  What is the run time?

(c)  What is the order cycle time?