The Ptomaine Tavern, a famous fast-lunch spot near an institute of higher learning, procures three basic cooking ingredients from the same supplier. H. Fishman, one of the co-owners, estimates that the fixed cost associated with placing an order is $10. In addition, there is a fixed “aggravation” charge of $1 for each SKU included in the order. Usage of each of the three ingredients is relatively stable with time. The usages and basic unit values are as follows:

Item Usage Rate Unit Value ID (Units/Week) ($/Unit)

CO-1 300 1.00 CO-2 80 0.50 CO-3 10 0.40

a. If a coordinated replenishment strategy is to be used, what should be the values of the mi’s?

b. When pressed by a consulting analyst for a value of the carrying charge r (needed to compute the family cycle time T), Fishman replies: “I don’t know from nothing concerning a carrying charge! All I know is that I’m satisfied with placing an order every 2 weeks.” How would you use this answer to impute an approximate value of r?

Discuss why it is likely to be only an approximation.

c. What quantities of the three items should the Ptomaine Tavern order?

d. Suppose that the supplier offers Ptomaine a 3% discount on any order totaling at least

$1,350 in value (before the discount). Fishman’s partner, L. Talks, likes the idea of saving on the purchase price. Fishman is not so sure about the advisability of tying up so much money in inventory. Should Ptomaine take advantage of the quantity discount offer? P-96