Concept explainers
A public utility intends to buy a turbine as part of an expansion plan and must now decide on the number of spare parts to order. One part, no. X135, can be purchased for $ 100 each. Carrying and disposal costs are estimated to be 145 percent of the purchase price over the life of the turbine. A stockout would cost roughly $88,000 due to downtime, ordering, and "special purchase" factors. Historical records based on the performance of similar equipment operating under similar conditions suggest that demand for spare parts will tend to approxin1ate a Poisson distribution with a mean of 3.2 parts for the useful life of the turbine.
a. What is the optimal number of spares to order?
b. Carrying no spare parts would be the best strategy for what range of shortage cost?
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EBK OPERATIONS MANAGEMENT
- Assume the demand for a companys drug Wozac during the current year is 50,000, and assume demand will grow at 5% a year. If the company builds a plant that can produce x units of Wozac per year, it will cost 16x. Each unit of Wozac is sold for 3. Each unit of Wozac produced incurs a variable production cost of 0.20. It costs 0.40 per year to operate a unit of capacity. Determine how large a Wozac plant the company should build to maximize its expected profit over the next 10 years.arrow_forwardPeter Sagan is in charge of maintaining hospital supplies at Champs Hospital. During the past year the mean weekly demand for a special type of tubing was 186 packages of this tubing with a standard deviation of 13 packages of tubing. The lead time for receiving this tubing from the supplier is 1.5 weeks. Peter would like to maintain a 95% service level and places an order for 750 packages every time an order is placed. a) How much safety stock should be used for a 95% service level? b) If the weekly demand is 186 and there is a 1.5 week lead time - what is the reorder point (95% service level)? c) How much safety stock should be used for a 99% service level? solve using excelarrow_forwardDaily demand for product EPD101 is normally distributed with a mean of 50 units and a standard deviation of 5. Shipping is usually certain with a lead time of 6 days. The cost of placing an order is $8 and annual carrying costs are 20% of unit price of $1.20. A 95% service level is desired for the customers who place orders during the reorder period. Backorders are not allowed. Once stocks are depleted, orders are filled as soon as stocks arrive. No stockout costs. Assume sales made over the entire year.How much to order and what is the reorder point? What is the cost of carrying safety stocks?.arrow_forward
- Cooler Corporation is a manufacturer of cooling products. It purchases 14,400 units of a particular component (CK55) each year at a cost of $60 per unit. Cooler Corporation requires a 12% annual rate of return on investment. In addition, relevant carrying costs for insurance, material-handling, and breakage are $0.40 per unit per quarter, whereas warehousing rental cost is $12,000 per month. Relevant costs per purchase order are $144.00. Purchasing manager’s salary is $80,000 per year. Required: Calculate Cooler’s EOQ for CK55. Calculate Cooler’s total ordering and carrying costs. Assume that demand is uniform throughout the year and is known with certainty. The purchasing time is half a month. Calculate the reorder point for CK55.arrow_forwardConsider two products A and B that have identical cost, retail price and demand parameters and the same short selling season. The newsvendor model is used to manage inventory for both products. Product A is to be discontinued at the end of the season this year, and the leftovers will be salvaged at 65% of the cost. Product B will be re-offered next summer, so any leftovers this year can be carried over to the next year while incurring a holding cost on each leftover unit equal to 20% of the product's cost. How do the stocking quantities for these products compare? Multiple Choice Stocking quantity of product A is higher. Stocking quantity of product B is higher. The answer cannot be determined from the data provided. Stocking quantities are equal.arrow_forwardProduction Quantity Model A stew production facility sells the stew in an adjoining store. Demand for the stew is 32 gallons per day. Both the store and production facility operate 310 days per year. The company can produce 128 gallons per day. It costs $1200 to set up a production run. The stew is stored at an annual cost of $20 per gallon. The company wants to use the optimal order quantity. (Round the order quantity to an integer value) What is the maximum inventory level? How many production runs will be required each year? What is the total annual carrying cost? If the store places an order to the production facility for 1000 gallons of stew (not necessarily the economic order quantity), how many gallons of stew will be sold during the order receipt period?arrow_forward
- Stroheim’s is a dry goods store located in downtown Milwaukee, Wisconsin. Stroheim’s placesorders weekly with their suppliers for all of their reorders. The lead time for men’s briefs is4 days. Stroheim’s uses a 95 percent service level. Assuming a Type 1 service, what is the orderup to level for the briefs? Assume demands for briefs are uncertain with daily mean demandof 20 and daily standard deviation of 12arrow_forwardForrest and Dan make boxes of chocolates for which the demand is uncertain. Forrest says, “That’s life.” On the other hand, Dan believes that some demand patterns exist that could be useful for planning the purchase of sugar, chocolate, and shrimp. Forrest insists on placing a surprise chocolatecovered shrimp in some boxes so that “You never know what you’ll get.” Quarterly demand (in boxes of chocolates) for the last 3 years follows: Quarter Year 1 Year 2 Year 3 1 2 3 4 3,000 1,700 900 4,400 3,300 2,100 1,500 5,100 3,502 2,448 1,768 5,882 Total 10,000 12,000 13,600 a. Use intuition and judgment to estimate quarterly demand for the fourth year.b. If the expected sales for chocolates are 14,800 cases for year 4, use the multiplicative seasonal method to prepare a forecast for each quarter of the year. Are any of the quarterly forecasts different from what you thought you would get in part (a)?arrow_forwardYou are the executive chef at a large wedding facility, and a wedding with a confirmed count of 168 is scheduled for tomorrow at noon. Everything has been ordered except the shrimp, which was missing from the last purchase order. It will have to be a last-minute rush order, and only one supplier can get it to you in time. The purchase order will be for frozen raw, U 16-20, shrimp peeled, de-veined, tail-on, in 5-pound boxes (according to your spec for the product). You’ve dealt with this supplier before, and made a note to yourself on the jumbo shrimp spec that this vendor’s product averages 19 to 20 shrimp per pound and has a 96% yield. Catering policy dictates that a 10% buffer be provided for unexpected guests, and the catering menu states that 5 shrimp are to be served per person. If you have 4 pounds of good jumbo shrimp on hand, how much will you order for the wedding? Will there be any leftover product? How much?arrow_forward
- A company is planning to purchase 10,000 units of a particular item in the year ahead. The item is purchased in boxes each containing 10 units of the item, at a price of €400 per box. The cost of holding an item in inventory for a year (including insurance, interest and space costs) is 10% of the purchase price. The cost of placing and receiving orders is to be estimated from cost data collected relating to similar orders, where costs of €7,000 were incurred on 25 orders. It should be assumed that ordering costs change in proportion to the number of orders placed. 5% should be added to the above ordering costs to allow for inflation. Assume that usage of the item will be even over the year. Required: (a) Calculate the economic order quantity (EOQ) in boxes which minimises total costs (b) Outline when and why it is appropriate to use economic batch quantity (EBQ)arrow_forwardEven if we have substantial uncertainty in the parameters in the EOQ-model, it is still quite a useful model. Why?arrow_forwardPlease do not give solution in image format thanku A company produces sandals in four different patterns for summer. The demand for all four patterns is seasonal and normally distributed. Each of the four patterns has an expected demand of 10,000 pairs with a standard deviation of 4,000 pairs. Currently, all patterns are produced before the start of the season. Production cost is $20 per pair, and they are sold for a wholesale price of $36 per pair. Any unsold sandal at the end of the season is sold at discounted price of $15 per pair. It costs $1 per pair to hold the sandals in inventory for the entire season if it does not sell. The company is considering the postponement of printing the pattern of the sandals. This will require the base sandals to be made in advance (identical for each of the four models) and the final patterns to be printed later. This will increase production cost of sandals to $22. 5 per pair. What is the optimal cycle service level before postponement? (choose…arrow_forward
- Practical Management ScienceOperations ManagementISBN:9781337406659Author:WINSTON, Wayne L.Publisher:Cengage,