Question

1- (20 pts) Office Depot is open from 7:00 AM to 6:00 PM and it receives 200 calls per day for delivery orders. It costs Office Depot $25 to send out its trucks to make deliveries. The company estimates that each minute a customer spends waiting for an order costs Office Depot S0.20 in lost sales. 1- How frequently should Office Depot send out its delivery trucks each day? 2- Indicate the total daily cost of deliveries. 3- If a truck could carry only 7 orders, how often would deliveries be made and what would be the costs?

Answer 1

1-

Daily Demand D = 200

Total Time Available on daily basis = 11 hours = 660 minutes

Daily Holding Cost H = Daily Lost Cost = 660*0.20 = 132 per day

Set up Cost S = 25

Number of Delivery Truck will be equal to the EOQ.

EOQ = (2DS/H)^(1/2)

EOQ = (2*200*25/132)^(1/2)

EOQ = 8.70 Trucks

EOQ = 9 trucks

2-

Total Daily Cost of Delivery = Total Set up cost + Total Lost Cost

Total Cost = (D/EOQ)*S + (EOQ/2)*H

Total Cost = (200/9)*25 + (9/2)*132

Total Cost = 1149.56

3-

Time Between delivery = 660/7

Time Between Delivery = 94.29 minutes

Total Cost = (200/7)*25 +(7/2)*132

Total Cost = 1176.29