I'm learning operations research and this is a question that I came across:

The monthly demand for your family is 10kg, which is bought monthly. The maximum retail price (MRP) is INR400, on which generally there is a discount of 20%. But due to a pandemic situation, you are expecting that the flour would be sold on MRP in the coming months. Today, 20% discounted wheat flour is available in the local grocery store. Based on the learning in your operations management course, suggest the right amount of wheat flour be purchased this time. (Wheat flour should be used within 3 to 4 months of preparation).

I'm a bit confused because this seems alarmingly simple. Nothing is mentioned about the holding constraints of flour inventory, so shouldn't I just buy 30-40kg of wheat at this discounted price to last for the next 3-4 months (while the flour hasn't gone bad.)

Or should I rethink this and devise different cases and scenarios for different holding cost situations? Very perplexed on how to go about this question. Apologies if it is too basic (stupid) a question.


1 Answer 1


I'm not sure what "preparation" means here. If it is when the product is packaged for sale, the shelf life at home will perhaps be less than three to four months ... but then you should be told what the "preparation" date is.

Assuming your 10kg/month consumption rate is to be treated as definitive (not just an estimated average), it does seem like a strangely easy problem. Three questions you might ask yourself are the following. First, do you have space at home to store that much wheat flour? Second, is your current inventory zero or do you have flour on hand that presumably must be used before you use the newly purchased flour? Third, do you owe money to a loan shark? (The 20% discount makes it unlikely that you are financially better off deferring the purchase, but if your cost of capital is really high then it might be better to wait and pay full price later.)

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    $\begingroup$ In a general case, I would also evaluate if the 20% price discount still grants a saving considering the extra inventory holding costs connected to the larger stock (3-4 months worth of inventory instead of just one month). Clearly, it may not apply in this specific case due to the nature of the considered product. $\endgroup$
    – Libra
    Commented Oct 25, 2021 at 11:26

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