Minimize total annual holding and ordering costs

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Reference no: EM13964014

Consider an Construction service company(CSS) that stocks a specific type of compressor, which they source from an candain supplier. Since this compressor is the only product that CSC sources from that specific supplier, and given relatively steady demand of 2,000 compressors throughout the year, CSC uses a Continuous Review (Q) system for managing the inventory of this compressor. Orders to replenish stock requires administrative and other work that is estimated to be $40 per order. The compressors are purchased from the supplier for $325 each. It is estimated that annual inventory holding costs are 22% of the value of the item. The time from when an order is placed with the supplier until it arrives averages three weeks (including time to clear customs). What is the order quantity that CSC should use for these compressors if they wish to minimize total annual holding and ordering costs?

Reference no: EM13964014

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