operations management

Project Description:

carole smith is the newly hired materials manager for abc parts. a recent graduate of a prominent business school, smith is eagerly awaiting her first real-world problem. smith randomly selects a small sample compiles inventory and customer service characteristics to get a feel for the “total picture.” the results of this experiment reveal to her why abc parts decided to create the position she now fills. it seems that the inventory is in all the wrong places. although there is a lot of inventory, customer service is inadequate. because stockouts are costly relative to inventory holding costs, smith believes that a desired probability of no stock-out should be 95 percent.

carole smith knows that although her influence to initiate changes will be limited, she must produce positive results immediately. thus, she decides to concentrate on one product from the extensive product line: the eg151 exhaust gasket. if she can demonstrate significant gains from proper inventory management for just this product, perhaps the owner, mr. block, will give her the backing needed to change the total inventory management system.

the eg151 exhaust gasket is purchased from an over-seas supplier, taipei, inc. weekly demand is normally distributed with a mean of 102 units and the standard deviation of 2.86. assume that demand is over a 52-week year. a quick review of past orders indicates that the current inventory policy with an order size of 150 units is being used and that the lead time from taipei is fairly constant at two weeks.

the wholesale prices that abc parts charges its customers are $12.99 for the eg151 exhaust gasket. because no quantity discounts are offered on these highly profitable items, abc’s purchasing costs are 68 percent of the wholesale price for the exhaust gasket. abc parts estimates its cost to hold inventory at 21 percent of its inventory investment. this percent recognizes the opportunity cost of tying money up in inventory and the variable costs of taxes, insurance, and shrinkage.

out-of-pocket costs for abc parts to place an order with suppliers are estimated to be $20 per order for exhaust gaskets. on the outbound side, there can be delivery charges. to provide delivery of the orders to customers, abc parts contracts with a local company for a flat fee of
$21.40 per order, which is added to the customer’s bill. smith is unsure whether to increase the ordering costs for abc parts to include delivery charges.

question #1: (10 pts)

put yourself in carole smith’s position and report to mr. block on managing the inventory of the
eg151 exhaust gasket.

a) (8 pts) present a proper inventory policy with optimal order quantity and reorder point and calculate all relevant inventory costs.

b) (2 pts) compared to the existing inventory system, how much will abc parts save in terms inventory costs?

question #2: (10 pts)

dream team production is in the final design phases of its new file, killer worms, to be released next summer. market wise, the firm hires to coordinate the release of killer worms toys, identified the following activities to be completed before the release of the firm.

time (weeks)

activity immediate
predecessor(s) most most most
optimistic likely pessimistic
a b c d e f g h --- a a
b b,c d e,f a 1 2 3
2 4 12
1 2 3
6 7 8
10 12 14
2 3 4
1 5 15
2 5 14

a) (1 pt) draw the network diagram.
b) (2 pts) calculate the expected time and variance for each activity.
c) (3 pts) calculate the slack time for each activity. mark the es, ls, ef and lf on the diagram. find the critical path.
d) (2 pts) what is the expected completion time of the project? how much is the variance of the project completion time?
e) (2 pts) what is the probability that the project will be completed by 26 weeks?
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Price Type: Negotiable

Total Proposals: 2
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