A fast-food restaurant buys hamburger buns from a national bakery supplier. To estimate its costs, the restaurant assumes its buns are used at the constant rate of 100 per day and are purchased at $0.025 per bun. It costs $1 for each order placed. The annual inventory holding cost per unit is 25% of the unit purchase cost. Construct your model on worksheet Q3 to determine:
How much should be ordered each time to minimize the restaurant’s total annual costs? Assume the restaurant operates 360 days per year.
Suppose that it takes 4 days for the supplier to deliver. What is the Reorder Point (ROP) for the restaurant (in whole numbers)? Please conclude on the final inventory policy for this restaurant based upon your analysis.
