Gloria Goh operates a factory that manufactures pastries and related products. One of the major raw materials used is wheat, which she buys for $5 per kilogram. The factory operates for 350 days each year. The following information has been provided:

Annual usage of wheat 80 000 kilograms

Average time between placing and receiving order 4 days Estimated cost of ordering and receiving inventory (per order) $2 Estimated annual cost of carrying a kilogram of maize in stock $0.20

Required:

1 Use the above data to calculate: (a) Economic order quantity (EOQ). (b) Number of orders per year.

2 Gloria has recently heard of just-in-time (JIT) purchasing, and wonders if she should use it in his business. However, he is very concerned that the cost of placing frequent orders will be too high. Explain the advantages of JIT purchasing and address specifically his concerns about cost.