Should bean dreams cafe order from java roasters

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Reference no: EM133415373

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Case Study 1: A Soda Distributor's Inventory Management

The Soda Distributor estimates that the demand for 16-oz cans of "Poppy" soda is 80 cases per week, and it operates 48 weeks per year. The distributor currently purchases 80 cases of soda every week at the cost of $10 per case. The inventory-related holding cost for the distributor equals 20% of the capital tied to the inventory. Each order placed with the supplier costs the distributor $12.

a) How much money can the distributor save if they choose to use the Economic Order Quantity (EOQ) model instead of ordering 80 cases every week?

b) Assume the soda manufacturer is willing to give a 4% quantity discount if the distributor orders 500 cases or more at a time. If the distributor wants to minimize its total cost (i.e., purchase and inventory-related costs), should the distributor start ordering 500 or more cases at a time?

Case Study 2: Bean Dreams Café's Coffee Inventory Management

Bean Dreams Café is a newly established coffee shop on a university campus. The café uses 60 bags of whole bean coffee every month, with a steady demand throughout the year. The café has signed a year-long contract with a local supplier, Java Roasters, for a price of $30 per bag and $75 fixed cost for every delivery independent order size. The holding cost due to storage is $1.50 per bag per month. Additionally, the café managers figure their cost of capital is approximately 3 percent per month.

a) What is the economic order quantity?

b) If Bean Dreams Café chooses to use the EOQ model, how many orders do they place in a given year?

c) On average, how many dollars per year does Bean Dreams Café spend on inventory holding (including the cost of capital)?

Suppose that a European import/export company has offered Bean Dreams Café a deal for the next year. The café can buy a year's worth of coffee at once directly from Europe for $25 per bag and a fixed cost for delivery of $550. Assume the estimated cost for inspection and storage is $1.25 per bag per month, and the cost of capital is approximately 3 percent per month.

d) Should Bean Dreams Café order from Java Roasters or the European import/export company? Quantitatively justify your answer.

Reference no: EM133415373

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