Phillip Robinson is an MIT graduate student that sells MIT memorabilia to finance part of his expenses. One of his items is a model of the MIT Dome, the Dommie. Phillip forecasts to sell about 760 Dommies annually with a forecasted annual RMSE of 190 units. Assume 365 days a year.

Phillip pays $250 per Dommie and sells them for $975. Shipping costs for an order of Dommies are $50 for orders between 1 and 100 Dommies and $75 for larger orders. The order lead time is 5 days from the vendor, and the annual holding rate is 10%. Phillip wants to maintain a cycle service level of 95% on the Dommie.

Phillip orders items periodically and has placed the Dommie in his 4-week (28-day) review policy.

What is his order-up-to-point S for an (R, S) policy?

What are his expected annual ordering, cycle stock, and safety stock costs?

Phillip would like to develop an (s, Q) policy and see how it compares with his current (R, S) policy (from Question 1).

What should the reorder point (s) be?

What should the order quantity (Q) be?

What would be the total relevant cost associated to this policy (include ordering cost + cycle stock cost + safety stock cost)?

Despite the interesting results of the (s,Q) policy explored in Question 3, he has disregarded this option because reviewing his inventory continuously instead of periodically would take up more of his time, and he has a busy student schedule.

A Harvard student who has started a similar business called him and proposed to coordinate ordering from the same vendor. His shipping cost will be reduced to $25 per order, but he would have to order more frequently (R=14 days). If he agrees to this collaboration, what will be the impact on his costs (calculated in Question 2)?

The ordering cost will: increase, decrease or remain the same?

The cycle stock cost will: increase, decrease or remain the same?

The safety stock cost will: increase, decrease or remain the same?