Alice Opens an Aquarium Store in a Lively Shopping Mall

question 80

Essay

Alice opens an aquarium store in a lively shopping mall and finds business to be booming but she often stocks out of key items customers want.She decides to experiment with inventory control methods such as using a fixed order quantity (FQS) and/or fixed order period (FPS) systems.The FLUVAL 303 Pump, a high margin and profitable pump, is one of her best sellers but it stocks out frequently.You collect the following date with respect to this pump's sales.
Demand = 5 units per week
Store open 50 weeks/year
Order cost = $40/order
Lead-time = 3 weeks
Item cost = $80/pump
Inventory holding cost = 15% per year
a.What is the Economic Order Quantity (EOQ) rounded to the next highest number?
b.If the current order quantity used by Alice is 20 pumps per order, how much money can she save annually by adopting an EOQ ordering policy?
c.If Alice decides to use a FPS, what is the economic fixed order interval?

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Definitions:

Patented Technology

Innovations or inventions that are legally protected by patents, preventing unauthorized use, replication, or sale.

Timely New Products

The strategic introduction of new products to the market at the most opportune moment to meet consumer demand and stay competitively relevant.

Environmental Uncertainty

Refers to the degree of unpredictability and complexity in an organization’s external environment, affecting its decision-making processes.

Complexity

The state of being intricate or complicated.