Question

The TransCanada Lumber Company and Mill processes 10,000 logs annually, operating 250 days per year. Immediately upon receiving an order, the logging company’s supplier begins delivery to the lumber mill at the rate of 60 logs per day. The lumber mill has determined that the ordering cost is $1600 per order, and the cost of carrying logs in inventory before they are processed is $15 per log on an annual basis. The number of operating days required to receive an order

Answer 1

Annual demand = 10,000

Operating days = 250 days

Daily order = 60 logs per day

Ordering cost = $1600 per order

Inventory carrying cost =$15 per log per year

• First we will find Q*, economic order quantity. Order quantity is optimum when annual holding cost = ordering cost

• Total number of orders is the ratio of annual demand and economic order quantity. It represents how many orders are processed in a given year.

Total number of orders = 10000/1461 = 6.845 = 7 (rounded off)

• Time between two orders is ratio of operating days and number of orders.

Time between two orders = 250/7 = 35.71 = 36 days.