Purchasing manager of an electronics manufacturer decided that the company will be ordering 4,000 units of a specific component from their supplier, for one of their best selling products for the coming year. The component costs $200 per unit. Annual inventory holding rate is assumed to be 30%.
a. What is the inventory turnover rate and days of supply if there are equal quarterly deliveries?
b. What is the inventory turnover rate and days of supply, if there are equal bimonthly deliveries?
c. Which delivery schedule should the manufacturer prefer and why? What will be the resulting savings from using the preferred delivery schedule?
d. What assumption about demand that the manufacturer is facing did you make in your answer to parts (a) to (c) above?
