What is the optimal order quantity

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Question

Ray wishes to determine the optimal order quantity for its best-selling bike in his bike store. Ray pays the supplier a wholesale price of $100 each for this bike. Ray has estimated the average daily demand for this bike is 21 units. The store opens 2% days a year. The cost to carry one bike in the store for a whole year is 61% of the unit bike cost. Ray has estimated that, on average, the order processing cost, i.e., ordering cost, with the bike supplier each time is $195, and it roughly takes 20 working days to receive the order from the supplier. Ray wishes to avoid the stock-out situation with a probability of 95%, and this requires Ray to carry a safety stock of 30 bikes in the store.

What is the optimal order quantity {EDQ value} that Ray should order each time from the bike supplier to minimize his long-run inventory cost?

Reference no: EM133959786

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