A plant manager and her controller were discussing the plant’s inventory control policies one day. The controller suggested to the plant manager that the ordering policies needed to be reviewed because of new technology that had been put in place in the plant’s purchasing department. Among the changes that had been implemented in the plant were installation of (1) computerized inventory tracking, (2) electronic data interchange capabilities with the plant’s major suppliers, and (3) in house facilities for electronic fund transfers.
a. As technology changes, why should managers update ordering policies for inventory?
b. Write a memo to the plant manager describing the likely impact of the changes made in this plant on the EOQ of material input.
b. Without prejudice to your solution in part a(2), assume that the optimal dollar amount of marketable securities to be sold is $60,000.
(1) Calculate the average cash balance in Chemcon’s checking account that will be on hand during the course of the year.
(2) Determine the number of times during the year that Stanly will have to sell securities.
c. Describe two different economic circumstances applicable to Chemcon that would render its use of the EOQ inventory model inappropriate as a cash management model.