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Target – Two popular coffee brands sold at Target stores are SB and EO – These coffees are shipped to Target’s DeKalb distribution center (DC) from their local warehouses – Cost of 12-oz coffees are $12 for SB coffee and $6 for EO coffee • Suppose – Weekly demands at DeKalb DC are 200 packages for SB coffee and 300 packages for EO coffee • Assume DeKalb DC operates 52 weeks per year – Fixed cost of ordering any coffee is $400 per order (including transportation cost) – Additional ordering costs that depend on coffee brand are $300 for SB coffee and $300 for EO coffee – Inventory holding cost per package per year is 50% of the cost of coffee – Assume that there is no limit on truck capacity • Questions – (1-1) What is the optimal lot size (economic order quantity) of each coffee if DeKalb DC replenishes each coffee brand independently? – (1-2) What is the cycle inventory of each coffee at DeKalb DC? – (1-3) What is the annual ordering cost of each coffee at DeKalb DC? – (1-4) What is the annual holding cost of each coffee at DeKalb DC?

Suppose now – Target’s DeKalb DC in Question 1 replenishes two coffees (SB, EO) jointly from these coffee brands’ warehouses – Assume that there is no limit on truck capacity • Questions – (2-1) What is the optimal lot size for each coffee if DeKalb DC replenishes two coffees jointly? – (2-2) What is the cycle inventory of each coffee at DeKalb DC? – (2-3) What is the total annual ordering cost of two coffees at DeKalb DC? – (2-4) What is the annual holding cost of each coffee at DeKalb DC?