Inventory Management

Company A is a European company that sells goods solely within the EU. Its current policy is that an order of 50,000 units would be placed when the inventory level falls to 17,500 units. The cost of placing and processing an order is 240. The cost of holding a unit in store is 0.50 per unit per year. Orders are received two weeks after placing the order. The demand for next year is expected to be 320,000 units. You should assume a 50-week year and that demand is constant throughout the year.

Calculate the cost of the current ordering policy and determine the saving that could be made by using the economic order quantity model.