Consider an inventory with only four items with the following characteristics:

Item i Di (Units/Year) vi ($/Unit)

1 7,200 2.00 2 4,000 0.90 3 500 5.00 4 100 0.81 The inventory manager vehemently argues that there is no way that he can evaluate A and r; however, he is prepared to admit that A/r is reasonably constant across the items.

He has been following an ordering policy of using a 4-month time supply of each item. He has been under pressure from the controller to reduce the average inventory level by 25%.

Therefore, he is about to adopt a 3-month time supply.

a. Develop an EOQ aggregate exchange curve.

b. What are the values of TACS and N for A/r = 200?

c. What A/r value gives the same TACS as the current rule?

d. What A/r value gives the same N as the proposed rule?

e. Use the curve to suggest an option or options open to the manager that is (are) preferable to his proposed action.