What is the optimal order quantity for refillable mugs

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Reference no: EM132226963

A sustainability-oriented local coffee shop is open 350 days of the year and offers sustainably-sourced refillable mugs for purchase to help customers reduce their environmental footprint. They charge $8.00 for the mug, or if a customer brings their own refillable mug they offer a $0.50 discount on their hot beverage purchase. The shop owners buy each much at a cost of $5.00 from their supplier and estimate that they can sell about 1,000 mugs each year. The mugs come from a sustainably-minded supplier, who charges an additional ordering fee of $100 on every order of mugs which helps to cover the extra cost of the recycled-content packaging and low-emissions fleets that they use for delivery. The refillable mug supplier guarantees delivery within 7 working days of ordering. The coffee shop owners are happy to offer this sustainable mug option, however, storing these mugs is not the primary purpose of the coffee shop, and they take up a lot of room. The owners estimate that it costs them about $0.70/unit/year to keep the extra mug inventory in a storage cupboard (this cupboard had to be placed out in the shop area, reducing the number of tables that fit into the coffee shop).

a. What is the optimal order quantity (EOQ) for refillable mugs?

b. When should the shop owners re-order another delivery of refillable mugs?

c. Assume that the mean lead time demand (LTD) for refillable mugs was 3/day, with a STDEV (?LTD) of 2/day, and the owners believed that there was a 90% probability that they would not face stock-out (service level of 90%).

• What is the recommended safety stock for refillable mugs?

• What is the revised ROP given the safety stock requirement?

Reference no: EM132226963

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