Reference no: EM131900409

Problem: You work at Fineze, a retailer that sells wine of various quality and prices. Fineze orders two types of wine, Xylo and Yolo, from a France wine distributor. The cost of placing an order is $533 and the annual holding cost rate of Fineze is 14.0%. The lead time is 2 weeks and Fineze only pays for the goods when the shipment arrives at their distribution center. Assume that there are 48 weeks in a year.

The annual demand for the less popular wine variety, Xylo, is very stable at 5388 bottles. The costs of Xylo is $ 35 per bottle.

The annual demand for the more popular wine variety, Yolo, is also very stable at 36272 bottles. The costs of Yolo is $ 71 per bottle.

Question 1: Yolo is packed in a special bottle that requires very careful handling. If it is a large delivery, a few other employees are needed to help unpack. You proposed to your manager that there is an extra handling cost of $0.33 for each bottle of Yolo if the order for Yolo is larger than 440 bottles. You can consider as if each bottle costs $0.33 more if the order for Yolo is larger than 440.

What is the order size that will minimize total costs considering the extra handling costs?

Question 2: The manager does not agree with you that there is an extra handling cost, so let's ignore your proposal for the rest of this question.

Currently, you order the wine separately based on the intervals indicated in Question 1 and 3. The manager told you to streamline the ordering process such that Xylo and Yolo are ordered together in an interval of power of two (i.e., every 1, 2, 4, 8, ... weeks). This makes inventory management more straightforward and saves ordering costs by batching multiple SKUs into one order. If two wines were ordered from the distributor at the same time, they would charge the cost of only one order. In other words, the ordering cost of each of the SKU is halved.

Based on the manager's instructions, what is the best interval to order the wines? Answer in number of weeks.