Udogadi Retail Stores, a regional supermarket chain, orders 480,000 cans of frozen orange juice per year from a Lagos based distributor. A dozen-can case of frozen juice delivered to Udogadis central warehouse costs N3600.00, including freight charges. The company borrows funds at a 10% interest rate to finance its inventories. The Udogadis purchasing agent has calculated that it costs N16,800 to place an order for frozen juice and that the annual carrying expense (electricity, insurance, handling and storage) is N130 for each can of juice. In addition, Udogadi usually takes loan from his local bank at an annual rate of 10% to finance his inventory. The Managing Director of Udogadi has always stated that the goal of the store is to guarantee a high level of service to its frozen juice customers. However, he is not certain how to accomplish this goal. All previous efforts to attain this service level have failed. In the case of the last attempt, it resulted in excessive cash being tied down. Learning that youve been pursuing your MBA at LBS, he has approached you for help. Assume that the supermarket is open every day of the year.

a) What is the optimal economic quantity of frozen juice he should buy each time an order is placed?

b) What is the total annual inventory cost of your proposal in question (b)?

c) How many orders for juice does the store have to place each year?

d) What is the time between orders (in working days)?

e) What reorder point should be used if the delivery lead time were to be increased to 2 days?

f) The economic order quantity model usually assumes constant demand rate and constant lead times. What changes would you recommend to Udogadi to accommodate for uncertainties in demand and lead times?