Dillard Travey receives 5,000 tripods annually from Quality Suppliers to meet his annual demand. Dillard runs a large photographic outlet, and the tripods are used primarily with 35-mm cameras. The ordering cost is $15 per order, and the carrying cost is 50 cents per unit per year. Quality is starting a new option for its customers. When an order is placed, Quality will ship one-third of the order every week for three weeks instead of shipping the entire order at one time. Weekly demand over the lead time is 100 tripods.
(a) What is the order quantity if Dillard has the entire order shipped at one time?
(b) What is the order quantity if Dillard has the order shipped over three weeks using the new option from Quality Suppliers, Inc.? To simplify your calculations, assume that the average inventory is equal to one-half of the maximum inventory level for Quality’s new option.
(c) Calculate the total cost for each option. What do you recommend?
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