Ernest Rogers has recently become the manager of a small bookstore located in Harvard Square, and he is determined to improve the bookstore's supply chain operations. He is currently looking into one of their wildly popular short books on the history of Harvard University. The demand for this book is exceptionally stable - there is virtually no variability. The bookstore sells about 3270 of these books annually to tourists for $10 per copy. Ernest discovered that they have been ordering the books using an order quantity of 487 units and that it costs the bookstore $100 to place an order. He also found out that the bookstore pays the publisher $2 per copy and that the bookstore's inventory holding cost is 0.28 $/$/year.

Assume 52 weeks per year.

Part 1)

What are the annual purchase, holding, and order costs of their current policy? How frequently do they place orders?

Purchase cost:

Holding cost:

Order cost:

Ordering frequency (in weeks):

Part 2)

Two bookstore employees have suggested ways to improve the management of these books. Christina suggests ordering using an EOQ policy. Gary suggests that the original order quantity is fine and that he has a way of reducing the cost to place an order to only $25 per order.

What are the annual purchase, holding, and order costs for Christina's plan? What is the ordering frequency?

Purchase cost:

Holding cost:

Order cost:

Ordering frequency (in weeks):

Part 3)

What are the annual purchase, holding, and order costs for Gary's plan? What is the ordering frequency?

Purchase cost:

Holding cost:

Order cost:

Ordering frequency (in weeks):

Part 4)

After evaluating the two proposals and all their implications, Ernest is willing to implement Christina approach. But something is missing in her model. The publisher is located in California, therefore it takes one week to receive the books from the moment an order is placed. The bookstore pays for the books when they place the order.

Assuming that they will be using an EOQ policy and that the cost to place an order remains at $100, what will be the annual purchase, holding, and order costs? What will be the ordering frequency?

Purchase cost:

Holding cost:

Order cost:

Ordering frequency (in weeks):

Part 5)

This early morning the publisher called, he is working on a new edition of the book and is trying to get rid of all the stock he has of the current edition. He is offering a 30% discount per book, only during this week.

How many books should Ernest order?