Question

The farmer is considering switching to one of the following, and they need your help with the calculations. 2. Unlike the current method of checking every Monday but not necessarily ordering each time, the farmer could Ueview every P days and place an order each time. What should P be (round to nearest number of weeks), if the objective is to minimize totel annual ordering p lus holding costs? If the farmer were to switch to lower-cost feed, should they order more or less often than your answer above? (Hints for the following: what type of an inventory control system is it? What is being asked - Q? R? P? T?

Answer 1

To minimize total annual ordering plus holding costs, the farmer should use the Economic Order Quantity (EOQ) formula to determine the optimal order quantity. The value of P should correspond to the EOQ. If the farmer switches to a lower-cost feed, they should order more often than the EOQ to take advantage of the lower cost.

Step-by-step explanation:

The farmer is considering switching to an inventory control system where they review every P days and place an order each time. The objective is to minimize total annual ordering plus holding costs. To determine the value of P, the farmer needs to consider the Tradeoff model, which balances the costs of ordering and holding inventory.

In this model, the Economic Order Quantity (EOQ) formula is used to find the optimal order quantity. The formula for EOQ is:

1. EOQ = sqrt((2DS)/H)
2. Where D is the annual demand, S is the setup or ordering cost, and H is the holding or carrying cost per unit per year.
3. To minimize total costs, the farmer should select the value of P that corresponds to the EOQ.

If the farmer were to switch to a lower-cost feed, they should order more often than the calculated EOQ to take advantage of the lower cost and minimize holding costs.