Nadine runs a business that imports re-usable water bottles for sale in the UK. The supplier sells these to Nadine in batches of 500 units. Nadine has been trading for three and a half years. She has consistently achieved sales of 1,250 units per month (2019 to 2021). In the period January to June 2022 however this increased to 2,000 per month, and she has run out of stock every month as a result. She has estimated that each stock out has cost her £60. Nadine has had this problem before in 2019 (5 stock outs) and 2020 (2 stock outs) but in 2021 she had fixed the problem and achieved no stock out events. Each batch of 500 units, including shipping and taxes costs £2,800. The cost of placing and processing each order, regardless of quantity, is £80. Records show the following average stock holdings and associated costs: 2019 750 units £500 2020 1,000 units £650 2021 1,250 units £800 Required: Assuming that the increased demand seen so far in 2022 continues, what would appear to be the optimum order size? What is the optimum base stock level for 2022 based on current demand? For each of the two areas above, explain the results and advise Nadine on the potential impacts of unexpected delays in the supply chain.
. Nadine runs a business that imports re-usable water bottles for sale in the UK. The supplier sells these to Nadine in batches of 500 units.
Nadine has been trading for three and a half years. She has consistently achieved sales of 1,250 units per month (2019 to 2021). In the period January to June 2022 however this increased to 2,000 per month, and she has run out of stock every month as a result. She has estimated that each stock out has cost her £60. Nadine has had this problem before in 2019 (5 stock outs) and 2020 (2 stock outs) but in 2021 she had fixed the problem and achieved no stock out events.
Each batch of 500 units, including shipping and taxes costs £2,800. The cost of placing and processing each order, regardless of quantity, is £80. Records show the following average stock holdings and associated costs:
2019 750 units £500
2020 1,000 units £650
2021 1,250 units £800
Required:
- Assuming that the increased demand seen so far in 2022 continues, what would appear to be the optimum order size?
- What is the optimum base stock level for 2022 based on current demand?
- For each of the two areas above, explain the results and advise Nadine on the potential impacts of unexpected delays in the supply chain.
Step by step
Solved in 4 steps
