STAT379: Operations Research II Assignment 1: Session 2, 2014

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STAT379 OPERATIONS RESEARCH II
Session 2 2014

Assignment 1
(Tutorial Problems for Week 3)

This is worth 5% of total assessment.


This is an individual assessment task. You are encouraged to discuss this assignment
with your fellow students; however, your results and writing up must be your own
work.

Show all your working in obtaining your answers.

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The Assignment cover page can be found on the STAT379 iLearn site.

Please submit your Assignment solutions before 2:00 pm on Friday 29th August,
2014.

Hard copies of the assignment will not be accepted.



STAT379: Operations Research II Assignment 1: Session 2, 2014
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Assignment Problem 1
The data in the table below provide the quarterly consumption of Nescafe Blend 43
Coffee sachets in a Hotel over a span of thirteen years. The hotel manager buys
Nescafe Blend 43 Coffee sachets 1000 Packs from Office Works when needed.

From the inventory modelling perspective, it is reasonable to assume that each month
represents a decision period in which the hotel manager places an order. One main
concern, however, is to analyse the nature of the demand. The data is the number of
Nescafe Blend 43 Coffee sachets 1000 Packs from Office Works purchased by the
manager each month.

Year Jan Feb March April May June July Aug Sept Oct Nov Dec
2001 14 12 9 6 8 12 10 12 11 12 11 11
2002 9 14 11 11 12 9 6 9 14 13 10 9
2003 10 10 11 12 9 8 8 10 10 8 10 10
2004 11 11 13 12 8 14 8 10 11 10 8 11
2005 10 10 10 12 9 14 10 13 9 15 13 12
2006 12 8 9 11 11 5 5 13 11 10 12 14
2007 11 10 12 13 11 12 11 13 11 7 9 8
2008 10 10 9 11 7 11 12 12 10 12 13 11
2009 12 12 7 10 11 8 8 10 10 6 14 11
2010 9 11 12 10 11 11 8 10 15 12 12 11
2011 10 9 11 10 11 12 12 9 10 9 9 13
2012 12 10 11 11 9 11 10 9 14 10 15 10
2013 11 9 12 13 6 8 10 10 11 13 9 9

Based on the above data, what is the nature of demand?

Assignment Problem 2
An online e-tailer Spoilt Cats sells an average of one hundred 30 litre clumping litter
bags per month. The cost holding of a 30 litre clumping litter bag in inventory is 25%
of the price Spoilt Cats pays for one 30 litre bag of clumping litter. Each time Spoilt
Cats places an order with its supplier it costs $20. The price charged per 30 litre
clumping litter bag depends on the number of bags purchased by Spoilt Cats. The
price schedule is given below.

No. of bags Price per 30 litre bag
1 - 50 $14.75
51 - 100 $14.70
101 - 150 $14.65
151 - 200 $14.60
201 - 300 $14.55
301 and over $14.50

a) Determine the size of each order placed by Spoilt Cats.

b) Determine how often the Spoilt Cats should order.

c) At what price should the Spoilt Cats order?
STAT379: Operations Research II Assignment 1: Session 2, 2014
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Assignment Problem 3
Spoilt Pets produces among many things the Get Off My Garden Repellent Spray
500ml which trains cats and dogs to keep away from specific areas such as gardens,
lawns, driveways, paths, and verandahs. Annual demand for this product is 400,000
items per year. The recommended retail price is $18.92. The product can be produced
at the rate of 40,000 items per month. Each production run costs $5,000 to set up, and
it costs $8 to produce each item. The annual cost per dollar value of holding items in
inventory is 20%. Assume that Spoilt Pets operates each day of the week for 48
weeks of the year.

a) Identify the most appropriate model to use.

b) For the model used write down all the parameters needed, along with a brief
explanation of each parameter, and their value.

c) Determine the optimal production run size. Show all your working.

d) How long does each production run last (give your answer in days not years)?
Show all your working.

e) When does a new production occur (give your answer in days not years)? Show
all your working.

f) What is the annual total cost of this production plan? Show all your working.

Assignment Problem 4
The demand for a chocolate eclair at a local bakery can be approximated by the following
probability distribution.
Chocolate Eclair 15 16 17 18 19 20
Probability 0.10 0.25 0.30 0.20 0.14 0.01
Each chocolate eclair costs $1.50 to make and retails for $3.50. Unsold chocolate eclairs
are sold an hour before closing for $1.00 each. The shortage penalty is estimated to be 20c
for each chocolate eclair short.

a) Identify the appropriate model to use.

b) For the model used write down all the parameters needed, along with a brief
explanation of each parameter, and their value.

c) How many chocolate eclairs should be ordered? Show all your working.

d) What is the expected shortage? Show all your working.

e) What is the expected surplus? Show all your working.

f) What is the total expected cost? Show all your working.

g) For the optimal quantity calculated in part b), determine the probability that there
will be a shortage. Show all your working.
STAT379: Operations Research II Assignment 1: Session 2, 2014
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Assignment Problem 5
The latest Apple iPad Air 32GB Wi-Fi (Space Grey) is stocked by a large home
entertainment retailer in Caringbah. The average annual demand for this particular
iPad is anticipated to be 1,000. It costs the store $450 to purchase an Apple iPad Air
32GB Wi-Fi (Space Grey) which it then sells for $698. Each order placed by the
store has a fixed cost of $50. The lead-time demand is approximated by a normal
distribution with a mean of 30 and standard deviation of 12. The holding cost per
Apple iPad Air 32GB Wi-Fi (Space Grey) per year is 0.20 per dollar value. A
backorder is taken from a customer if the large home entertainment retailer in
Caringbah has run out of this particular iPad. The shortage penalty is estimated to be
$10 per Apple iPad Air 32GB Wi-Fi (Space Grey) short per year.
a) Identify the appropriate inventory model to use.

b) For the model decided upon in part a) write down all the parameters needed, along
with brief explanations of each parameter, and their value.

c) Determine the optimal number of Apple iPad Air 32GB Wi-Fi (Space Grey) the
large home entertainment retailer in Caringbah should order. Furthermore,
determine the reorder level for the Apple iPad Air 32GB Wi-Fi (Space Grey) as
well as the expected shortage. Show all your working.

d) What number of Apple iPads Air 32GB Wi-Fi (Space Grey) need to be left in
stock before a new order is placed? Show all your working.

e) What is the expected demand for Apple iPads Air 32GB Wi-Fi (Space Grey)
during the lead-time? Show all your working.

f) What is the expected number of Apple iPads Air 32GB Wi-Fi (Space Grey) still
left in stock when a delivery of newly ordered Apple iPads Air 32GB Wi-Fi
(Space Grey) is made? Show all your working.

g) What is the probability of a shortage? Show all your working.

h) Write down the optimal inventory policy for Apple iPads Air 32GB Wi-Fi
(Space Grey). Make sure you state what the Total Expected Cost is.