Restaurant Napkin Inventory Management

How can a restaurant optimize its napkin inventory management?

With a constant daily rate of 62,500 boxes of napkins each year, how can the restaurant minimize costs related to napkin ordering and inventory management?

Economic Order Quantity (EOQ) Solution:

By utilizing the concept of Economic Order Quantity (EOQ), the restaurant can determine the most cost-effective quantity of napkins to order, reducing overall expenses.

In the situation described, the restaurant can benefit from applying the EOQ formula to calculate the optimal order quantity for napkins. The EOQ formula involves considering the demand for napkins (62,500 boxes per year), ordering cost ($200.00 per order), and holding cost ($1.00 per box).

The EOQ formula is √(2DS/H), where D represents the demand (62,500 boxes), S is the ordering cost ($200.00), and H is the holding cost ($1.00).

By calculating the EOQ using the provided values, the optimal order quantity for napkins is determined to be 5,000 boxes. This means that the restaurant should order 5,000 boxes of napkins at a time to minimize costs.

Furthermore, based on the EOQ principle, the average inventory level for napkins will be half of the EOQ, which equals 2,500 boxes. This ensures that the restaurant maintains an efficient level of inventory without incurring unnecessary holding costs.