Australian Glass Fibre Makers Ltd manufactures glass fibres used in the Australian communication industry. The company’s materials and parts manager is currently revising the ordering policy for zaico. Zaico is one of the chemicals used in the production process to manufacture fibre. The chemical is purchased 10 kilogram canisters for $95 each. The firm 2uses 4 800 canisters per year. The accountant for Australian Glass Fibre Makers Ltd estimates that the incremental costs for ordering and receiving zaico chemical is $150 per order. The annual cost of storing zaico is $4 per canister. The lead time to receive an order for zaico chemical is one month.

REQUIRED:

A. Use the EOQ formula to determine the optimal order quantity. (5 marks)

B. What is the total annual cost of ordering and storing zaico chemical at economic order quantity? (3 marks)

C. How many orders will be placed per year? (2 mark)

D. Describe some measures that can be used to evaluate supplier delivery performance and the quality of the supplier relationship. (5 marks)