The Petroco Company uses a highly toxic chemical in one of its manufacturing processes. It must have the product delivered by special cargo trucks designed for safe shipment of chemicals. As such, ordering (and delivery) costs are relatively high, at $2,600 per order. The chemical product is packaged in 1-gallon plastic containers. The cost of holding the chemical in storage is $50 per gallon per year. The annual demand for the chemical, which is constant over time, is 2,000 gallons per year. The lead time from time of order placement until receipt is 10 days. The company operates 310 working days per year. Compute the optimal order quantity, the total minimum inventory cost, and the reorder point.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
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The Petroco Company uses a highly toxic chemical in one of its manufacturing processes. It
must have the product delivered by special cargo trucks designed for safe shipment of chemicals.
As such, ordering (and delivery) costs are relatively high, at $2,600 per order. The chemical
product is packaged in 1-gallon plastic containers. The cost of holding the chemical in storage is
$50 per gallon per year. The annual demand for the chemical, which is constant over time, is
2,000 gallons per year. The lead time from time of order placement until receipt is 10 days. The
company operates 310 working days per year. Compute the optimal order quantity, the total minimum
inventory cost, and the reorder point.

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