Shipping Fee Should They Negotiate

(a) What shipping fee should they negotiate with the supplier Current Annual Shipping fee No of shipments Shipping fee per order 4.51000 4500 SO for monthly shipments, Shipping Fee per month 4500/12 375 per shipment (b) Based on this new shipping fee, what would be the reduction in annual holding cost as compared to their prior situation Assume that they operate optimally. EOQ Sqrt (2CR/F) where P Purchase cost per unit R Annual usage 6500 ton C per Shipment Cost 1000 F Holding cost Annual holding cost average inventory level x holding cost per unit per year order quantity/2 x holding cost per unit per year Current Order Qty per order Q Annual Reqt/ No of shipments 6500/4.5 1444.44 ton or 1445 ton So We have 1445 Sqrt(210006500/F) ie (210006500/F) 14452 So Holding cost F 6.23 per ton So Annual Holding cost (Q/2)F (1445/2)6.23 4501 With Monthly shipments, Q 6500/12 541.67 ton per shipment or 542 appro So 542 Sqrt(23756500/F) ie (23756500/F) 5422 So New Holding cost F 16.62 per ton So Annual Holding cost (Q/2)F (542/2)16.62 4504 So Avge Holding cost hardly changes. It has changed by a small amount of 4504-4501 3 Problem 2 Weekly demand for diskettes