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You will calculate quantities and annual costs to answer two supply chain questions. When you are finished, submit your answers for review by your instructor.
1. A distribution center sells Sony televisions to retailers at a constant demand rate of 20,000 units per year. It costs the distribution center $500 to place an order. Also, the price the distribution center pays the manufacturer for each unit is $350. The inventory holding cost is $30 per unit per year. The material cost is $250 per unit. Assume that the lead time from the manufacturer to the distribution center is zero years, and that the initial inventory at the distribution center is zero units. Calculate the economic order quantity and the total annual cost.
2. Calculate the total annual cost change if the order quantity had to be decreased to 250 units per order.
The introduction to the case explains that when we consider an organization as the anchor of a supply chain, we extend the boundaries of the organization itself.
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