Question

The factory needs 1,000,000 light bulbs per day ( assume 7 day a week operations ), you have to average no more than $250k in fresh light bulbs in inventory on site. Your supplier is in China. Your firm "PTP" uses factory gate pricing. It is a 2 day trip from the factory to the port Shensen. The shipper only ships in groups of 5 containers of production per ship, 3 weeks on route to Seattle and 7 days by rail to your Muncie, IN factory. At a value of 50 cents a piece and holding costs of 8% per year.

1. What is the total value of the pipeline inventory?
2. What are the average annual holding costs of the pipeline inventory ( average inventory in transit and average daily inventory waiting to be loaded into the plant times the annual holding cost rate)?
3. What do you need to do ( number of containers on site ) to achieve the $250k in average at the plant inventory value. Assume the containers hold 1,000,000 light bulbs a piece.