Problem on inventory control

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Reference no: EM13108233

Carmin's Boutique sells a large number of black dress shirts. The shirts, which bear the store label, are shipped from a manufacturer in Paris. Carmin's purchasing department manager says, "I want to be sure that I never run out of dress shirts. I always try to keep at least a two months' supply in stock. When my inventory drops below that level, I order another two-month supply. I've been using that method for 20 years, and it works."

The shirts cost $6 each and sells for $15. The cost of processing an order an receiving new goods amounts to $80, and it takes three weeks to receive a shipment. Monthly demand is approximately normally distributed with mean 120 and standard deviation 32. Assume a 20 percent annual interest rate for computing the holding costs. The loss-of-goodwill cost is $4.4 per shirt.

1. What values of Q and R is Carmin's Boutique currently using (based on the narrative above) to control inventory of black dress shirts?

2.Determine the optimal values of Q and R that the should be using. (Assume 4 weeks in a month for your calculations.)

3. Based on the previous analysis, what would you recommend Carmin's Boutique to do in terms of number of units to order and reorder level?

Reference no: EM13108233

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