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(a) Arcadia Windings is concerned about its stocks of copper cable. The demand for this is 8,000 metres a week, with a cost of £4 a metre. Each order costs £350 for administration and £550 for delivery, and has a lead time of 8 weeks. Holding costs are about 25 per cent of value held a year, and any shortages would disrupt production and give very high costs. What is the best inventory policy for the cable? How does this compare with the current policy of placing a regular order every week?
(b) How would this analysis differ if the company wanted to maximize profit rather than minimize costs? What is the gross profit if the company sells cable for £8 a metre?
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