Reference no: EM133006008

Question - Geox Ltd buys shoes from a supplier in Italy and sells them on to retailers in Australia. Geox Ltd currently uses an EOQ model to determine the number of shoes to send to order.

The annual demand for shoes is approximately 45,600.

The ordering cost is $55 per order.

The annual cost of physically storing shoes is $8.75 per unit.

The insurance on the inventory (shoes) cost is $4.25 per unit.

The opportunity cost (annual ROI 25% x $30) is $7.50 per unit.

The accountant of Geox Ltd, Richard Branson, recently attended a seminar on Just-in-Time (JIT) and is considering how the ideas of JIT differ from traditional techniques like EOQ and how they may help to manage inventory more efficiently.

REQUIRED -

A) Use the EOQ model to determine the optimal number of shoes per order. (show calculations)

B) If it takes two weeks to receive an order, at what point should Geox Ltd reorder shoes? (show calculations)

C) Geox Ltd has determined that demand may vary from the average by up to 25%. To handle the variation in demand, Geox Ltd has decided that it should maintain enough safety stock to cover any demand level. How much safety stock should the Sydney warehouse hold? How will this affect the reorder point and reorder quantity? (show calculations) 

D) Briefly outline what is a Just-in-Time system and explain why inventory holding cost can be regarded as being underestimated traditionally, providing examples of component parts of that cost.