The optimal inventory policy for sharp razors

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Reference no: EM131140298

Demand for Sharp disposable razors at Chevere Drugs averages seven packages per day. The razors cost Chevere $0.80 per package and sell for $1.49. Chevere uses a 20% annual holding cost rate and estimates the cost to place an order for additional razors at $25. Chevere is open 365 days a year and desires a safety stock of 15 packages. The lead time for delivery is five days. Determine the following:

a) The optimal inventory policy (order quantity and reorder point) for Sharp razors.

b) The number of days between orders (cycle time).

c) The total annual inventory cost (holding, ordering, and procurement) and the projected annual net profit of this policy.

d) What assumptions did you make regarding demand in solving this problem?

e) How would your answers to part a change if Sharp requires its customers to purchase razors in gross units (multiples of 144) and Chevere desires a safety stock of 20 razors?

Reference no: EM131140298

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