Question

Question 5 (20 marks)
Fashion Nepal Pvt. Ltd. that operates 300 days a year, has been selling designer wear throughout the city
across four outlets. For a particular item, they expect to have an annual demand of 12000 units during
the next fiscal year. It ordering cost is expected to be Rs. 150 per order and the annual holding cost is
expected to be 90% of the cost of each unit. Their current supplier has an average delivery lead time of
50 days and a standard deviation of lead time of 15 days. The supplier offers them a pricing schedule
shown in the table below.
Units
Price
0-999
Rs. 100
1000-1999 Rs. 97
2000 or more
Rs. 95
A second potential supplier has been discovered and supplier does not offer any quantity discounts and
charges a price of Rs. 108 per unit, however they have a fixed delivery lead time of 30 days without any
variation. The second supplier is slightly farther away therefore the ordering cost increases to Rs. 162 per
order. Assuming the holding cost remains unchanged and the demand is constant, which supplier should
Fashion Nepal choose if they want to have a 98% service level? (z score 2.05)

Answer 1

Answer:

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Answer 2

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