Demand for an item is constant at 1,000 units a year

3.1 Demand for an item is constant at 1,000 units a year. Unit cost is £50, reorder cost is £100, holding cost is 25 per cent of value a year and no shortages are allowed. Describe an optimal inventory policy for the item. What order size will give a variable cost within 10 per cent of optimal? What is the cost if suppliers only make deliveries of 200 units?

3.3 Per Norstrom supplies computer systems to a warehouse in Rotterdam. He sells 16 systems a week. The cost of an average system is C–– 5,000, while order administration costs and delivery from Malaysia cost C–– 1,000. The lead time is around 4 weeks and holding costs are around 16 per cent a year. What policy would you recommend for Per?

3.4 Demand for an item is constant at 40 units a week, and the economic order quantity is calculated to be 100 units. What is the reorder level if lead time is constant at 4 weeks? What is the effect of adding some margin of safety and raising the reorder level by ten units? What happens if the lead time
(a) falls to 2 weeks or (b) rises to 6 weeks?