Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the French Bete Noire. Weekly demand is for 45 cases. Assume demand occurs over 50 weeks per year. The wine is shipped directly from France. Millennium’s annual cost of capital is 15 percent, which also includes all other inventory-related costs. Below are relevant data on the costs of shipping, placing orders, and refrigeration.
∙ Cost per case: $120
∙ Shipping cost (for any size shipment): $290
∙ Cost of labor to place and process an order: $10
∙ Fixed cost for refrigeration: $75/week
a. Calculate the weekly holding cost for one case of wine. [5.6]
b. Use the EOQ model to find the number of cases per order and the average number of orders per year. [5.6]
c. Currently orders are placed by calling France and then following up with a letter. Millennium and its supplier may switch to a simple ordering system using the Internet. The new system will require much less labor. What would be the impact of this system on the ordering pattern?