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An upscale home fixture supplier has four locations. Each location manages its ordering independently. The specialized lighting fixture sells for $300 and sales are on average 30 units per week. Currently the supplier orders 10-week supply from the manufacturer. The supplier pays $150 per fixture, and it takes two weeks to receive each delivery. The administrative cost of placing each order is estimated at $225. The supplier estimates the cost of capital at 20%. Assume 52 weeks in a year.
If the purchasing centralizes purchasing (for all four outlets), the retailer will only have to place a single order for all the outlets.
a) What is the EOQ under centralization?
b) How many orders must be placed annually?
c) Should the company centralize? Compare and discuss the two options.
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