How Much Should I Order?
G:Xiao Zhao is now in aconsulting office where Jim, an expert in logistics, is helping him to solve aproblem as how to order.
Zhao:X Jim: W
Zhao: Excuseme, my name is Zhao Li
Jim: Mr. Zhao, what can I do for you?
Zhao: Just call me Xiao Zhao. I have just bought afruit shop that supplies the market with fruits. And I really don’t know howfrequently I should put my orders and how much I should order at a time.
Jim: It must be a very complicated thing to do, Iguess, as fruits come in different types.
Zhao: Fortunately, I sell only a kind of peach.
Jim: Thins are much easier, then. However, thereare still other factors.
Zhao: For example?
Jim: The uncertainty of the market, the tax, andso on.
Zhao: According to the past records, the sales areeven. The annual sale volume of fruits is 5,000 kg and they are sold to retailcustomers in a steady flow.
Jim: It seems to be a very simple question, then.What is your chief concern now?
Zhao: At present, only two costs concern me. One isorder-processing costs and another is warehousing costs.
Jim: The order-processing costs include supplierselection, receiving, order paperwork preparation and so on.
Zhao: Do we need safety stock?
Jim: Since the sales are even, you don’t need anysafety stock.
Zhao: Do we need safety stock against sudden risein demand?
Jim: Yes. But in your case, it is not likely forsuch a thing to occur.
Zhao: Good news.
Jim: Your problem is to find out how many to orderwith the lowest expenses in warehousing and ordering.
Zhao: Quite right, I would like to know how much Ishould order at a time with the minimum cost.
Jim: This is, as I see it, a typical question ininventory management. Please provide the clear and accurate information onsales and inventory.
Zhao: OK, I will send them to you tomorrow.
Jim: In that case, I will give you answertomorrow.
Zhao: How much shall I pay for your service?
Jim: I don’t think I will charge you anything forsuch a trifle thing. But do come if you have any other problems.
Zhao: Sure, I will. See you later.
Jim: See you later.
