Question A1

A grocery store operates 7 days a week and sells the detergent to customers. The demand of detergent is at a fairly steady rate of 250 units per month, and the store uses a 25% of the unit price as the holding cost per pound per year. The detergent can be purchased from two suppliers, A and B. Assume that the cost of order processing for each supplier is the same at $30.

• Supplier A offers $1.20 per unit of detergent, and a cash rebate of $50 for any order size equal to or more than 600 units.

• Supplier B offers $1.15 per unit of detergent with no minimum order quantity requirement, but no cash rebate.

(a) Which supplier should be used? Justify your answer with the Total Annual Cost comparison. (Remarks: Show your steps and give your answers in integer.)

(b) What is the optimal order quantity?

(e) If the lead time is 12 days. What is the reorder point?