Buys and sells water filtration systems

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Question

AquaFlow Supplies (AFS) is a company that buys and sells water filtration systems. The company buys water filtration units from a manufacturer for $200 each. The manufacturer delivers the units to AFS and bears the delivery costs of $300 per shipment. Each time an order is placed, AFS incurs $400 in paperwork and inspection costs. On average, there is a lead time of 10 days for each order to arrive from the manufacturer to the AFS warehouse. Inventory carrying/holding cost for AFS is 10%. Average yearly demand for the water filtration units is 5,000 units. Answer the following questions, assuming there is no uncertainty about the demand:

1. How many water filtration units should AFS order each time?

2. Now that the lead time has increased from 10 to 12 days, how should AFS change the order quantity and the reorder point of the water filtration units: increase, decrease, or stay the same? Explain why.

3. There are several assumptions in the problem description enabling you to do the calculation in (a). Please list the key assumptions. Which assumptions do you think are the most unrealistic? Suppose AFS uses the order quantity that you calculated in

Reference no: EM133776426

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