#3 A,B,C ONLY

Background: When calculating economic order quantity (and the parameters of Q and P systems) we have assumed that the cost per unit is fixed. In practice, many suppliers use sliding price scales or price breaks where the cost per unit decreases for larger order quantities. In this homework you will examine calculating economic order quantity when price discounts are offered. A useful example is provided on pages 320-321 in the textbook! Description: Sheet Metal Industries (SMI) is a supplier of components made from sheet metal such as those used in desktop computers and electronic devices. One of the highest volumes products that SMI purchases is precut sheets of metal which are ordered directly from a steel processor. These sheets are then used to make metal components. You have been hired by SMI to devise an ordering policy that minimizes total costs while also meeting the needs of the firm. Based on data, SMI uses 200,000 precut metal sheets each year with a monthly standard deviation of 5000 sheets. It costs $300 to place an order, lead time is one month, and inventory carrying costs are 15%. The steel processor has a minimum order quantity of 1000 sheets and offers a sliding price scale a based on the quantity of each order: Order Quantity Unit Price 1,000-9,999 $2.35 10,000-29,999 $2.20 30,000 or more $2.15 1. Using this information, calculate the optimal order quantity for SMI. [9pts] 2. Would you recommend SMI use a Q system or a P system? If you would need additional information to make a recommendation, explain what information you would need. [3pts] 3. It is important to SMI to minimize the probability of a stockout as their customers could easily order from one of their competitors instead of SMI. Because of this, SMI aims for a 99% service level. Regardless of your answer to Question 2, assume that SMI decides to use a P system where orders are placed once a month to the steel processor. a. Calculate (really estimate) the parameters of the P system for SMI. [6pts] b. Describe/summarize the P system for SMI. [2pts) c. You need to place an order tomorrow and count inventory. Currently there are 7,429 precut sheets in inventory. How many sheets should you order? [2pts]