Outdoor Living Manufacturers uses 1,000 units of a product per year. The fixed cost is $28 per order, while the carrying cost is $5 per unit per year. The lead time is 5 days and, therefore, the firm keeps 7 days’ usage in inventory as safety stock.
a. Calculate the economic order quantity (EOQ) and the average inventory.
b. How many orders will Outdoor Living Manufacturers place during one year?
c. When should Outdoor Living Manufacturers place its orders?
d. Suppose Outdoor Living Manufacturers does not keep safety stock. Explain the changes, if any, that will occur in (1) order cost, (2) carrying cost, (3) total inventory cost, (4) reorder point, and (5) EOQ.