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At quantity discount model, when the quantity of order placed increases totthere are no shortage cost and quantity discount, the drugstore should order 362 toothbrushes when the inventory level reaches 0. This causes $54 total variable inventory cost per year approximately. If this policy is appropriate, 362 toothbrushes should be ordered once at 7,5 weeks (that’s, 7 times each year). Because of financial problems, if Totalee decides to close the warehouse located 20 miles from Nightingale, warehouse located 350 miles away will be convenient to place orders. Then, this distance will cause lead time. Therefore, it can be necessary to wait 5 days after the order is placed. In this case, when the inventory level declines to 35 toothbrushes, 362 toothbrushes should be ordered with a total annual variable inventory cost of $54,37. Lead time does not affect the cost and the quantity of order, changes only the ordering time. Customers are willing to wait to buy the toothbrushes from Nightingale since they have high brand loyalty and since Nightingale sells the toothbrushes for less. But they will become upset with the inconvenience of shopping at Nightingale and will perhaps begin looking for another store providing better service. So, making customers wait can be profitable because of the decrease in total holding cost. But on the other hand, this situation creates a cost, shortage cost, because of the losing customer goodwill and future sales. If planned shortages is allowed to occur, shortage cost is estimated as $1,30 per unit short per year. In this case, 383 toothbrushes should be ordered when the inventory level reaches –5 toothbrushes.
Approximate Word count = 1051
Approximate Pages = 4.2
(250 words per page double spaced)
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