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The purchasing manager for the Atlantic Steel Company must determine a policy for ordering coal to
operate 12 converters. Each converter requires exactly 5 tons of coal per day to operate, and the firm
operates 360 days per year. The purchasing manager has determined that the ordering cost is $80 per
order, and the cost of holding coal is 20% annually. The purchasing manager has negotiated a contract
to obtain the coal for S12 per ton for the coming year.
a. Determine the optimal quantity of coal to receive in each order.
b. Determine the total inventory related cost associated with the optimal order policy.
C. If 5 days lead time is required to receive an order of coal, how much should be on hand when
an order is placed?
d. Imagine that a supplier proposed to ship coal in batches of 500tons of coal. How would that
affect the annual inventory cost?- Discuss your answer.
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