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Determine optimal quantity of coal to receive in each year

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Question - The purchasing manager for the Shaon Steel Company need the decide on an ordering policy for coal to operate 12 converters. Each converter requires exactly 6 tons of coal per day to operate, and the firm operates 360 days per year. The purchasing manager has determined that the ordering cost is RM320 per order and the cost of holding coal is 20% of the average value of the cost of the coal. The purchasing manager has negotiated a contract to obtain the coal for RM50 per ton for the coming year.

a. Determine the optimal quantity of coal to receive in each year.

b. What is the average inventory?

c. How many orders would be placed in a year?

d. Determine the total inventory cost associated with the optimal ordering policy including the purchase cost.

e. If the lead time to receive an order of coal is 6 days, how much coal should in hand when an order is placed?

f. What is the optimal time between orders?

Reference no: EM133077897

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