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Decrease the optimal cost to place purchase order

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Reference no: EM133402308

You are on the acquisition team for a new pipeline from Houston through the Appalachian Mountains. While doing your research on the project, you have discovered several items that are consistent with what you learned in MGMT 574, and hopefully, you can apply the correct tools to help solve the operational problems. The first thing you notice is that lifting posts will be required. As you investigate the possibilities, you have uncovered a supplier who will provide lifting posts with the following characteristics: the purchase price is $130 per lifting post at a monthly volume of 100. The purchasing group charges $250 each time a P.O. is issued. The APR interest rate is 14.4% and the yearly storage fee is $12 per lifting post. Assume demand is known and inventory can be replenished.

1. What is the economic order quantity given the parameters for purchasing the lifting posts?

2. What steps could you take to decrease the optimal cost to place a purchase order and hold the inventory for one year?

Reference no: EM133402308

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