Integrated Case Study for MSE $600$ and $604$

The ZUSH Company

Katharine Rally is the vice president of operations for the ZUSH Company. She oversees operations at a plant

that manufactures components for hydraulic systems. Katharine is concerned about the plant$$s present

production capability. She has reduced the decision situation to three alternatives. The first alternative,

which is fully automation, would result in significant changes in present operations. The second alternative,

which is semi$-$automation, involves fewer changes in present operations. The third alternative is to make no

changes $($do nothing$).$

Based on the past data, she is convinced that the capital investment, annual revenue, useful lives, and

salvage values can be considered random variables with the specified probability distributions as shown in

the following table.

Alternative

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Parameter A B

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Capital Normal Normal

Investment Mean: $$300,000$ Mean: $$85,000$

Std$.$ dev.: $$50,000$ Std$.$ dev.: $$500$

Annual Normal Normal

Revenue Mean: $$150,000$ Mean: $$85,000$

Std$.$ dev.: $$10,000$ Std$.$ dev.: $$500$

Useful live Discrete uniform Discrete uniform

$3$ to $8$ years with $3$ to $7$ years with

equal probability equal probability

Salvage Value Uniform Uniform

$30,000$ to $$60,000$ $$10,000$ to $$20000$

As a manager of the plant management team, you have been assigned the task of analyzing the alternatives

and recommending a course of action. A one to two$-$page Project Status Report is due on or before $09/22.$

The report should briefly describe how you want to tackle the problem and the questions below in parts $$a$$

through $$c$.$ The report must be typed.

The body of your final report should address the following points. a$.$ Your job is to evaluate the solution alternatives and recommend the best approach. Discuss why the

Monte Carlo Simulation technique is the right approach to address the problem.

b$.$ Given the specified probability distributions, develop a simulation of $50$ sample points of AW values at a

MARR $0$f $20\%/$year$.$ Interpret your results and indicate which alternative should be selected.

Hint: Use the Random Number Generation $($RNG$)$ Data Analysis Tool package of Microsoft Excel. The

online help function explains how to initiate and use the RNG to generate random numbers from a

variety of probability distributions: normal, uniform $($continuous variable$),$ binomial, Poisson, and

discrete.

c$.$ How do you trust the result of your simulation study? Discuss the validity of the simulation results by the

following approaches.

$1.$ Increase the sample points to $100,500,1000,$ and $5000$ and conclude that one the alternatives

would be better than the other one.

$2.$ Statically show that one of the alternatives is more appropriate than the other one. Hint: Apply

hypothesis testing method to one of the sample point data, say the $100$ sample point, data. Use

necessary assumptions about the standard deviation of the sample population.

$3.$ Apply the Confidence Intervals and conclude that one the alternatives would be better than the