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ECO Auto Repair fixes about 1,300 of a certain transmission part annually. ECO purchases each part for $50. They use 20% annual interest rate for holding costs. The ordering cost (or setup cost) for each order is estimated as $30 based on labor and shipping costs. Supplier lead time is five weeks. Currently the company places an order to buy this transmission part once every 6 months, but they are not sure if this is optimal and would like you as a systems engineer to make a recommendation?

a) (5 points) What is the optimal number of these transmission car parts ECO should purchase each time an order is placed?
b) (4 points) What is the reorder point?
c) (4 points) What is the order cycle length?
d) (4 points) How many orders would ECO place in a year?
c) (4 points) How much is ECO expected to spend on inventory related costs annually?
f) (4 points) How does the optimal ordering policy compare to the current policy in terms of annual costs? What would be the saving through the optimal policy?

 
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