Reference no: EM132817778
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.
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