Determine the optimal order quantity of picture frames

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Reference no: EM132308527

The bookstore imports picture frames. Weekly demand for picture frames is normally distributed and averages 1,500 with standard deviation of 800. Each picture frame costs $10. The bookstore incurs a holding cost of 25% per year to carry inventory. Each order shipped incurs a fixed transportation and delivery cost of $10,000. Consider 52 weeks in the year.

a) Determine the optimal order quantity of picture frames for the bookstore.

b) How many orders per year will the bookstore place?

c) If the delivery time is 4 weeks and the bookstore wants to provide its customers with a service level of 90%, how much safety stock should it carry?

d) Fastship is a new shipping company that promises to reduce the delivery lead time from 4 weeks to 1 week. Using Fastship will add $0.2 to the cost of each picture frame. Should the bookstore go with Fastship? Why or why not? Quantify the impact of the change. (For simplicity, assume (contrary to fact) that the economic order quantity does not change, despite the additional cost per unit.)

Reference no: EM132308527

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