Eliminate the ill-effects of forward buying, Marketi, Supply Chain Management

Eliminate the ill-effects of forward buying, Marketi, Supply Chain Management

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Saki, a local bar, consumes Mehboob, a popular non-alcoholic drink, at a steady rate of 10 cases/week. Saki usually buys Mehboob at $6/case, delivered to its door. However, the supplier is currently offering a promotional price of $5/case.

(a) If the carrying cost for Mehboob is $0.25/$/year, how many cases should Saki buy to take advantage of this promotion? Assume that the current promotion may end any day and that the next promotion is unlikely in foreseeable future. Indicate any other assumption(s) that you make for your analysis.

(b) How will your decision in part (a) change in each of the following cases?

i. If you had reasons to believe that your supplier gives this promotion annually;

ii. If you had reasons to believe that your supplier may give this promotion again sometime between six months to a year from now, equally likely;

iii. To eliminate the ill-effects of forward buying, your supplier allows you to order any quantity you like, but delays the delivery until you actually need it.

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