A factory manager must decide whether to stock a particular spare part. The part is absolutely essential to the operation of certain machines in the plant. Stocking the part costs $10 per day in storage and cost of capital. If the part is in stock, a broken machine can be repaired immediately, but if the part is not in stock, it takes one day to get the part from the distributor, during which the broken machine sits idle. The cost of idling one machine for a day is $65. There are 50 machines in the plan that require this particular part. The probability that any one of them will break and require the part to be replaced on any one day is only 0.004 (regardless of how long since the part was previously replaced). Question: If the plant manager wants to minimize his expected cost, should he keep zero, one, or two parts in stock?
A factory manager must decide whether to stock a particular spare part. The part is absolutely essential to the operation of certain machines in the plant. Stocking the part costs $10 per day in storage and cost of capital. If the part is in stock, a broken machine can be repaired immediately, but if the part is not in stock, it takes one day to get the part from the distributor, during which the broken machine sits idle. The cost of idling one machine for a day is $65. There are 50 machines in the plan that require this particular part. The probability that any one of them will break and require the part to be replaced on any one day is only 0.004 (regardless of how long since the part was previously replaced).
Question:
If the plant manager wants to minimize his expected cost, should he keep zero, one, or two parts in stock?
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