2.2. Suppose that you are an operations analyst at Anglo American Platinum and you have been asked to appraise the

companys inventory ordering policy. The following information is available:

INFORMATION:

Anglo American Platinum uses ABC analysis as an inventory categorisation method. The current inventory ordering policy is to order 10 000 units of an A-item inventory when the level falls to 4 500 units. Forecast demand to meet production requirements during the next year is 62 500 units. The cost of placing and processing an order relating to this inventory

(10 marks)

2

item is R250, while the cost of holding a unit in store is R50 per unit per year. You anticipate that both costs will be constant during the next year. Orders are received two weeks after being placed with the supplier. Assume a 50-week year and that demand is constant throughout the year.

REQUIRED:

Based on the information above, answer the following questions:

2.2.1 Using a quantitative analysis, appraise the optimality of the current ordering policy of the A-item inventory (Show

all calculations).

2.2.2. Calculate the economic order quantity (EOQ) of the A-item inventory (Show all calculations).