(a) Arcadia Windings is concerned about its stocks of copper cable. The

demand for this is 8,000 metres a week, with a cost of £4 a metre. Each

order costs £350 for administration and £550 for delivery, and has a lead

time of 8 weeks. Holding costs are about 25 per cent of value held a year,

and any shortages would disrupt production and give very high costs.

What is the best inventory policy for the cable? How does this compare

with the current policy of placing a regular order every week?

(b) How would this analysis differ if the company wanted to maximize profit

rather than minimize costs? What is the gross profit if the company sells

cable for £8 a metre?

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