Calculate the optimal order quantity

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Reference no: EM132237650

The propane reseller SmeliGas is during peak season selling an average 71.9 propane cylinders per day, operating 300 days per year. The reseller is sourced with propane cylinders from the main plant in Winterthur, from where cylinders are always delivered one day after order has been placed. For each delivery the reseller is charged $50. Each cylinder has a value of $64. Analysis of the sales shows that the standard deviation of the sales per day, equals 17.6

1. Calculate the optimal order quantity, assume annual holding cost of 15% of held inventory.

2. SmeliGas wants to have a service level of 99%, recommend an inventory control strategy that will support the strategy.

3. SmeliGas is always carefully analysing its supply chain and the associated costs, and has found that they in order to improve efficiency all order delivered to the resellers must be delivered in full pallets where each pallet contains 12 cylinders. It has also been decided to use another transport contractor, in this new contract the lead-time has been increased to two days.

Reference no: EM132237650

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