Question

The BNK biotech company purchases a special type of raw material for one of its products calledNLK-15 from a global wholesaler every three months. Emergency shipments can be made between these three-month intervals to resupply when inventory falls short of demand. It takes two weeks to receive the emergency shipments. The customers of BNK are willing to wait this long for a package of NLK-15. However, they will go to another seller if they must wait for the next three-month shipment. Historical data for the customer demand over a three-month interval for the last 10 years is shown below. The cost of holding one pack of NLK-15 for one year is $500. The cost of emergency shipment is$250 per package over and above normal shipping costs. For each of the following questions fully interpret your final results and recommendations for the company. a) How many NLK-15 packages should the company be purchasing every three months? b) Repeat part (a) if excess demands are back ordered form one period to the next. In this case, the loss-of-goodwill cost is $100 for customers that have to wait until the next three-month period. Also, the bookkeeping expenses for is $50 per customer. c) Assume that if the company is out of stock of NLK-15, the customers will purchase the product from another biotech company. In this case, assume that each NLK-15 package costs an average of $10,000 and sell for an average of $13,500. How many NLK-15packages should the company be purchasing every three months? Ignore loss-of-goodwill costs.

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