You have just started an OM business in which you provide a product or service (custom cupcakes). The delivery process consists of two steps. Step 1 has no variability, one dedicated resource, and takes exactly one hour per customer order (= flow unit). Step 2 has low variability with unit process time p = 2 hours, CV_p = 0.35, and m = 2 resources. For simplicity, we will assume that customer order arrivals come to Step 1 in a regular and predictable manner with no variability and a constant interarrival time of a = 75 minutes. The central problem is to quote a delivery lead time (aka flow time) to customers in minutes. Actual delivery lead times are expected to be normally distributed with a CV of 0.3. If the actual delivery lead time is an hour higher than the quoted lead time, you lose (pay a penalty) of 10 $/order. If the actual delivery lead time is an hour lower than the quoted lead time, you lose (opportunity cost) of 5 $/order. 

What delivery lead time in minutes would you quote to your customers? Show you calculations or provide the logic / explain your choice. Calculate the flow rate of your process. 

Answer rating: 100% (QA)

To determine the delivery lead time to quote to customers we need to consider both the process times and the potential penalties or opportunity costs ... View the full answer