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Determine the optimal order quantity of planters for hg

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Reference no: EM132813487

The Home and Garden (HG) chain of superstores imports decorative planters from Italy.

Weekly demand for planters averages 1,500 with a standard deviation of 800. Each planter costs $10.

HG incurs a holding cost of 25% per year to carry inventory. HG has an opportunity to set up a superstore in the Phoenix region.

Each order shipped from Italy incurs a fixed transportation and delivery cost of $10,000. Consider 52 weeks in the year.

(a) Under the EOQ assumptions, determine the optimal order quantity of planters for HG.

(b) If the delivery lead time from Italy is 4 weeks and HG wants to provide its customers a cycle service level of 90%, how much safety stock should it carry?

(c) Fastship is a new shipping company that promises to reduce the delivery lead time for planters from 4 weeks to 1 week using a faster ship and expedited customs clearance.

Using Fastship will add $0.2 to the cost of each planter.

Assuming that the target service level is still 90%, should HG go with Fastship?

Report the change in the total annual cost if HG goes with the Fastship option.

Reference no: EM132813487

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