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Question
Daily demand for high-quality paper tablecloths at Anteater Products (AP), a company in the wholesale catering business, is 1000 tablecloths. The tablecloths are supplied to AP by a wholesaler, Irvine Paper (IP). The price that IP charges AP for a case of 10,000 tablecloths is $5000, and IP sells only complete cases. The delivery time for an order from IP averages 5 days.
Each time an order is received at AP's warehouse, there is 2 hours of labor required to store and document the order at a cost of $100 per hour. According to the accounting department at AP, the company's cost of capital is 15%. In this problem, it may be assumed that there are 350 days in the year.
AP is currently ordering 5 cases of tablecloths per order.
Suppose that IP will give a price "break" of 2% more of AP accepts orders of 10 cases. Should AP tale the lower price in this case or stick with the current best solution? Provide as much evidence as possible to back up your decision.
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