Overview

ITOM $6277$ Operations and Supply Chain Management

Individual Homework $2$

Read each of the following questions carefully, complete any necessary calculations in Excel, and record your responses in the Answer Sheet.

Submit both your answer sheet and supporting work in Excel$$for grading. Question $1$

Morty$$s Raincoats sells the Executive, a raincoat so popular that the demand is fairly steady throughout the year $($during summer months, Morty exports them to the southern hemisphere$).$ The demand is $4000$ raincoats per year. Morty buys these raincoats for $$50$ per unit and stores them in his basement. Morty$$s calculations show him that he generally incurs an opportunity cost $($or cost of capital$)$ of $20\%$ per year on the value invested in inventory. Cost of transportation is $$100/$order; in addition, Morty tips the truck driver $$25$ for every delivered order. Assume $50$ weeks in a year.

a$.$ How many executives should Morty order every time he places an order?

b$.$ It is also known that the coats are actually made in Guadalajara, Mexico and it takes a

full week for a batch to be delivered after an order is placed. Given this information, what is the optimal reorder point?

Question $2$

Organix is a health supplements retailer. Every year, Organix sells $1000$ lbs of powdered wheatgrass. They have two suppliers: Altera Foods, which charges $$15$ per pound and Bristol Farms, which charges only $$14\mathrm{.}50$ per pound. Although ordering products online is costless for both suppliers, there is another difference. Bristol ships only from their Connecticut farm and it costs Organix $$250$ per order. Altera has local distributors who can ship to Organix for only $$50$ per order. The holding cost $$ for both purchased and manufactured wheatgrass powder $$ is estimated to be about $10\%$ of purchase price per year.

ITOM $6277$ Operations and Supply Chain Management

a$.$ What is the Economic Order Quantity $($EOQ$)$ if Organix buys only from Altera?

b$.$ What is the EOQ if Organix buys only from Bristol?

c$.$ Which of the suppliers should Organix choose? Why?

Question $3$

All$-$Star bats sell aluminum bats to colleges. The monthly demand for bats is $1000($throughout the year$),$ and it costs $$10$ to produce a bat. The holding cost is about $$0\mathrm{.}75$ per bat per year. It costs $$200$ to set up each production run.

a$.$ How many bats should All$-$Star produce in each production batch?

b$.$ Assume the holding cost and price of a bat in the market are fixed. A foreman has

proposed that the production cost of a bat can be reduced by $20$ cents by making a process change. However, this will increase the setup cost to $$400.$ Should All$-$Star implement this change?

Question $4$

Every year, in the weeks surrounding certain holidays, USPS stations all over the country have a surge in parcels, which contain a lot of eventually useless gifts. USPS collects and maintains data about the number of truckloads of mail they had to deliver during these weeks. The data below demand distribution for the number of trucks that have been used in Austin, TX over the last several years; USPS believes that the current year demand will also follow a similar pattern.

# of Trucks $151617181920$ Probability $0\mathrm{.}100\mathrm{.}150\mathrm{.}250\mathrm{.}20\mathrm{.}180\mathrm{.}12$

The weekly cost of owning and operating a mail truck at the central post office in Austin has been calculated as $$600$ per week. In the case of an emergency, trucks can be leased from a central USPS depot. This costs the Austin USPS location $$1000.$

a$.$ Suppose USPS decides to keep $17$ trucks locally for the holiday season. What would be the expected overall cost associated with that decision?

b$.$ What is the optimal number of trucks that minimizes the overall expected cost? What is the corresponding cost?

Question $5$

ITOM $6277$ Operations and Supply Chain Management

Jack Schoppe is evaluating two locations for starting a QuizYes toasted sub outlet. The demand in location A is normally distributed with a mean of $150$ subs a day with a standard deviation of $50.$ Location B$$s daily demand averages at $160$ with a standard deviation of $75.$ In both locations Jack will be able to sell his subs for $$6\mathrm{.}00$ each. The meat$/$veggies for the subs cost about $$3\mathrm{.}00$ per sub. Since they can be refrigerated, meat and veggies can be stored without wastage if there are leftovers at the end of a business day. If he opens one of the outlets, Jack must order fresh bread $($for subs$)$ every day from a centralized QuizYes Bakery and dispose of the remaining breads at the end of the day. The Bakery charges $$1\mathrm{.}00$ per bread.

a$.$ How many units of bread should Jack buy per day from the bakery if he opens an outlet in location A$?$

b$.$ How many units of bread would he need to order in location B$?$

c$.$ Between A and B$,$ which location is more profitable? Assume that other overhead costs

are identical for the two locations.