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Optimal Inventory Management for CC

Complete Computer (CC) has four retail outlets that each independently order 4,000 units per week on average. With a unit cost of $200 and annual holding cost of 20% per unit, the optimal order size for each outlet ordering independently is 3,000 units. If CC centralizes purchasing with a new fixed cost of $1,800 per order, the optimal total order size across all four outlets is 8,485 units, with an average cycle inventory of 4,242.5 units.

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RalphOberhuber
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1K views2 pages

Optimal Inventory Management for CC

Complete Computer (CC) has four retail outlets that each independently order 4,000 units per week on average. With a unit cost of $200 and annual holding cost of 20% per unit, the optimal order size for each outlet ordering independently is 3,000 units. If CC centralizes purchasing with a new fixed cost of $1,800 per order, the optimal total order size across all four outlets is 8,485 units, with an average cycle inventory of 4,242.5 units.

Uploaded by

RalphOberhuber
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Retail Inventory Management Problem: Presents a detailed analysis of inventory ordering and centralizing purchasing for a retailer with multiple outlets, including cost calculation and optimization strategies.

Complete Computer (CC) is a retailer of computer equipment in Minneapolis with four retail outlets.

Currently each outlet manages its ordering independently. Demand at each retail outlet averages 4,000
units per week. Each unit costs $200, and CC has a holding cost of 20% per annum. The fixed cost of
each order (administrative plus transportation) is $900. Assume 50 weeks in a year.
a. Given that each outlet orders independently and gets its own delivery, determine the optimal order
size at each outlet.
C = $200
R = 4000 * 50 = 200 000 / yr
S = $900
h=0.20 and H=h*C = 0.2 * 200 = $40 / yr
Q_optimum = sqrt ( 2 RS/H) = sqrt ( 2 *200 000 * 900 / 40 ) = 9 000 000 = 3000 for each outlet




b. CC is thinking of centralizing purchasing (for all four outlets). In this setting, CC will place a single order
(for all outlets) with the supplier. The supplier will deliver the order on a common truck to a transit
point. Since individual requirements are identical across outlets, the total order is split equally and
shipped to the retailers from this transit point. This entire operation has increased the fixed cost of
placing an order to $1,800. If CC manages ordering optimally in the new setting, compute the average
inventory in the CC system (across all four outlets).
C = $200
R = 4 * 4000 * 50 = 800 000 / yr
S = $1800
h=0.20 and H=h*C = 0.2 * 200 = $40 / yr
Q_optimum = sqrt ( 2 RS/H) = sqrt ( 2 *800 000 * 1800 / 40 ) = 9 000 000 = 8485 for all outlets
together

Cycle inventory I_cycle = Q_optimum / 2 = 8485 / 2 = 4242.5 units

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