A retiree and amateur woodworker has been contracted to make a small wooden souvenir for sale at the Gift Shop of the local Visitor's Center. The items are small/lightweight so primary cost of shipping is the fixed cost of a trip across town. Other relevant data for the Gift Shop are:

• Quarterly Demand = 1200 units
• Ordering (shipping) cost = $12 per order (basically cost of loading a pickup truck and gas for round trip drive)
• Holding cost = $0.25 per unit per year (low becoz it is simply cost of storing souvenirs in the basement of retiree's house)

1. At first the Gift Shop doesn't care when deliveries occur. In this scenario, what is the Optimum Delivery strategy for the retiree?
2. Under this scenario what is the Optimum Quantity, Ordering Cost, Holding Cost and Total Cost
3. After some time, the Gift Shop gets tired of receiving shipments at different times from all vendors. All vendors are asked to start making deliveries once a month in the second scenario. How would this requirement change the Quantity of each order, Ordering Cost, Holding Cost and Total Cost?
4. Based on this second scenario, should the retiree agree to the new delivery terms?
5. if all vendors make deliveries once a week, then there is no need to use a back room to store (potentially repurposing the space for more valuable use). Consequently, in Scenario 3, all suppliers are asked to make deliveries once a week.What is the new Delivery Quantity, Ordering Cost, Holding Cost and Total Cost?
6. Should the retiree accept the new delivery terms?
7. What does this tell you about the pros and cons of JIT?

Answer rating: 100% (QA)

Lets analyze each scenario Scenario 1 Optimum Delivery Strategy Economic Order Quantity EOQ model EOQ Formula Q sqrt2DSH Q Optimum Quantity D Quarterl... View the full answer