Part III - MANAGING INPUTS FOA VALUE-ADDING OPERATIONS Example of Order Veneer Furniture Company handles several lines of furniture, one of which is the popular Layback Model T chair, which the company purchases from a plant only 10 miles from the store. Since the source is so near. Veneer has not bothered to stock a large number of chairs in its warehouse. Instead, it sends its truck to "pick up a few" when there are none on the showroom floor: Slim Veneer, the owner, has observed that many times when he needs his truck to make a delivery, it is tied up making trips to the Layback plant, and he suspects his ordering practices may not be optimal. He has decided to determine by use of the EOQ model the best quantity to obtain in each order. Mr. Veneer has determined from past invoices that he has sold about 200 chairs during each of the past 2 years at a fairly uniform rate, and he expects to continue at that rate. He has estimated that preparation of an order and payment for the driver and truck and the invoice and other variable costs associated with each order are about $10, and it costs him about 1.5 pte. cent per month, or 18 percent per year, to hold itemy in stock. His cost for the chair is $87, so it costs hith 0.18$87=$15.66 to hold a chair for 1 year. 10 . course, a chair does not stay in stock that long, but Slim uses annual use rates, and the holding cost must be based on the same unit of time as the use rate. He could use the monthly use rate and the cost to hold chair for I month. Any other time base could be used as long as it was used for both the use rate and the cost to hold an item.) Veneer's calculations show that EOQ=H2DcS=15.662(200)(10)=255.43=15.98units He has therefore told the buyer that each time: orders Layback chairs she should order 16 of them