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Office Supreme, Inc., a local retailer of office supplies, faces demand for one of its inventoried items at a constant rate of 30,000 units per year. It costs Office Supreme $20 to process an order to replenish stock and $2 to carry the item in stock. The unit cost is $5.00. Stock is received 4 working days after an order is placed. Currently the store does no backordering. Assume 300 working days per year.
a. What is Office Supreme's optimal ordering quantity and optimal associated cost?
b. What is the optimal interval (in working days) between orders?
c. What is the demand during lead-time?
d. What is the inventory position immediately after an order has been placed?
e. Suppose that the store can obtain the units for only $4.00 per unit if they order in lots of at least 1000 units at a time. Should the company take advantage of this discount or not? Show all work.
f. Suppose that the store wants to consider a stockout strategy. They estimate the cost of back ordering to be $3 per unit per year. What is the optimal policy and cost of such a strategy? Show all work and draw a diagram of this policy.
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