Question

Suppose you are a supply chain manager for De Beers Diamond co., and your job is to order components for a manufacturing facility who produces engagement rings. Your supervisor has asked you to find the optimal ordering strategy for diamonds. (P.S. Diamonds are forever!) 1. Determine the optimal number of diamonds to order with the below assumptions: D = 500 units S = $5 per order H = $0.50 per unit per year

Answer 1

Answer:

100 units

Explanation:

Given that,

Annual demand (D) = 500 units

Ordering cost (S) = $5 per order

Holding cost (H) = $0.50 per unit per year

Optimal order quantity(Q):

$=\sqrt{\frac{2\times D\times S}{H}}$

$=\sqrt{\frac{2\times 500\times 5}{0.50}}$

$=\sqrt{\frac{5,000}{0.50}}$

$=\sqrt{10,000}$

      = 100 units

So, the optimal number of diamonds to be ordered is 100 units.