A Purchasing agent for a particular type of silicon wafer used in the production of semiconductor must decide among three sources. Source A will sell the silicon wafers for $2.1 per wafer, independently of the number of wafer ordered. Source B will sell the wafers for $2 for an order for not fewer than 2500 pcs, Source C will sell the wafers for $1,9 each but not accept an order below 3500 pcs. Assume the setup cost $100, and annual demand of 20.000 wafers. Assume holding cost of 25 percent annual interest.
a) Which source should be used, what is the size of the standing order?
b) If the replenishment lead time for wafers is three months, determine the reorder point based on the on-hand level of inventory of wafers.