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Beer Distribution A beer distributor sells 100 cases of regular 12-oz. Budweiser per week for 50 weeks each year. The distributor currently orders 100 cases at the beginning of each week (i.e., exactly its weekly demand) from a supplier at a cost of $8 per case. Each order involves a fixed cost of $10. The beer distributor estimates its annual per-unit inventory holding cost (cost of capital, insurance, etc.) at 25 percent. The goal of the problem is to figure out the optimal level of cycle inventory.
(a) What is the annual inventory holding cost for the distributor given its current ordering schedule? What is the annual fixed ordering cost?
(b) Does the distributor hold the right amount of cycle inventory, too much or too little? Why?
(c) What order size would you recommend the beer distributor adopts?
(d) How much would the distributor benefit from following your recommendation? (You can report the percent savings in annual holdings costs + annual fixed ordering costs)
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