$365$ days in a year assumption

Setup cost per order

Holding cost per unit per year

Expected annual demand

StDev of annual demand

Expected Lead time in years

StDev of Lead time in years

Expected demand during lead time

StDev of demand during lead time

Shortage penalty in a cycle.

Optimal solution using Solver to choose $Q$ and $k$

Changing cells

for Solver

Safety stock

Probability of a shortage during an ordering cycle

Reorder point

Willing to pay:

to get rid of the uncertainty

in shipping$-$time MicroApple & MacinDOS

$365$ days in a year assumption

Inputs

Optimal solution using Solver to choose $Q$ and $k$

Assessing the Stockout Costs Explicitly through $"$p$",$ the Shortage Penalty

Changing cells

for Solver

Safety stock

Probability of a shortage during an ordering cycle

Reorder point

PART $3$: MicroApple and MacinDOS Contract: Brand$-$New Scenario Analysis

$(16$ points$)$ An Excel Template is posted under the CM$2$ assignment slot to help you do the required analysis.

If the Excel file showing the full formulation and correct execution is missing, you will get zero credit for all parts of this question.

MicroApple is a manufacturer of personal computers. It currently manufactures a single model $-$ the MacinDOS $-$ on an assembly line with an expected rate of $5000$ units per year. The production rate is quite stable, thus $-$ variability can be ignored.

MicroApple orders the disk drives for the MacinDOS $(1$ per computer$)$ from an outside supplier at a cost of $$30$ each. Additional administrative costs for placing an order total $$400.$ The annual holding cost is $$12$ per drive.

If MicroApple stocks out of disk drives, production is halted, costing $$300$ per drive short. Because of the seriousness of stockouts, management wants to keep enough safety stock. The supplier now is offering two shipping options:

a$.$ With option $1,$ the lead time would have a normal distribution with a mean of $10$ days and a standard deviation of $4$ days.

b$.$ With option $2,$ the lead time would be exactly $10$ days.

Assume MicroApple operates $365$ days a year. Determine the optimal replenishment policy: specifically, the values of

safety factor,

safety stock,

order quantity, and

re$-$order point in each option.

Report the cycle service level for each shipping option.

Finally, quantify, what is the most MicroApple would be willing to pay extra to convince the supplier to switch to option $2?$