Homework #3

(C4P2, C4P7, ALPHA (C), C7P9, C7P12, C7P14, C7P17, C7P21, C7P26, C11P2, C11P5, C11P12, C11: Lear
Corporation)

C4P2:
A. What is the RPN for each failure cause?
M. 10 (5x2x1) N. 108 (3x4x9) X. 12 (2x2x3) Y. 42 (7x3x2) Z. 45 (9x1x5)
B. Which failure cause would be of least concern?
Failure cause M
C. Which failure cause would be of greatest concern?
Failure cause N
D. For the failure of greatest concern, would your recommended action be aimed at reducing failure
severity, occurrence, or undetectability? On what other information would your answer depend?
I would recommend reducing undetectability, because it has the highest value for cause N. It is also
important to know what the cost of reducing undetectability is in comparison with the costs of
reducing other factors such as severity and occurrence.

C4P7:
Document the steps that someone using the House of Quality procedure might follow in developing:

Product Customer Importance of Technical Assessment of

Desired Traits traits to Features Completion
customers
A. A new 21+ gears, 3, 5, 4, 6, Gear size, Customer
mountain Durable bike strength of metal, perceptions of
bicycle. chain, Light material used for performance
frame, premium frame, strength of
brakes, etc. brake wire, etc.
B. An Diverse 5, 4, 6, Total chapters Customer
introductory curriculum, covered, Project perceptions of
operations relevant projects, requirements, performance
management fair grading, etc. Average time
course. spent grading,
etc.
C. A new candy Rich taste, chewy 6, 5, 3, 4, Flavor profile, Customer
bar. texture, low percentage of perceptions of
sugar, low fat, etc. nougat used per performance
bar, amount of
aspartame used,
milk fat content
of chocolate, etc.
C4: ALPHA Timer Development Project (C):
1. How would you describe the team members morale at this point? What are their primary
concerns?
The team members morale is very low at this point due to all of the failures in the past. Their primary
concerns revolve around the fact that ALPHA was stuck in exclusivity with Whirlpool (preventing them
from hearing from the whole market) and that ALPHA lacked organization, since no one person was
responsible for the entire project. Since ALPHA was so departmentalized, it was difficult to get
everybody to work together for a common goal.
2. Given the team members comments, what advice would you give Roger Terry regarding the
forthcoming double-block timer development effort?
I would tell Roger Terry to fulfill the rest of the Whirlpool deal, while assigning a manager to take
charge of operations. Moving forward, ALPHA will need to be working together throughout all of
their departments.

C7P9:
Ergonomics Inc. sells ergonomically designed office chairs. The company has the following
information: Average Demand = 20 units/day Average lead time = 30 days Item unit cost = $50
(orders less than 200 units) Item unit cost = $48 (orders of 200 or more) Ordering Cost = $25
Inventory carrying cost = 25% Business year= 250 days
The basic question: How many chairs should the firm order each time? Assume there is no
uncertainty at all about the demand or the lead time. There are many associated questions, such as
what will the firms average inventory be under each alternative? What will be the breakdown of
costs for each alternative?
2 DC D= annual demand, U = unit cost, Co = Order cost, Ci = inventory carrying cost
EOQ 0

UC
=> D= 20x250 = 5000, U = 50 (if order < 200); 48 (if order > = 200), Co = 25, Ci = 25%
i

EOQ at $50: 2 x 5000 x 25/ 50 x .25 = 250000/12.5 = 20000 -> 20000 = 141.42 -> 141 units
EOQ at $48: 2 x 5000 x 25/ 48 x .25 = 250000/12 = 20833.33 -> 20833.33 = 144.34 -> 200 units
TAC of ordering 141 units:
Annual ordering cost = 25(5000/141) = 886.52
Annual inventory carrying cost = 50 x .25 (141/2) = 881.25
Annual Product cost = 50 x 5000 = 250,000
Total Cost = $251,767.77
TAC of ordering 200 units:
Annual ordering cost = 25(5000/ 200) = 625
Annual inventory carrying cost = 48 x .25 (200/2) = 1,200
Annual Product cost = 48 x 5000 = 240,000
Total Cost = $241,825
The firm should order 200 chairs
C7P12:
Meyer Stores carries a specialty line of flavored syrup. One of the most popular of these is raspberry
syrup, which sells, on average, 30 bottles per week. Meyers cost is $8 per bottle. Meyer has
determined its order cost to be $50 and inventory carrying cost is 20 percent. Meyer is open for
business 52 weeks per year. What is the EOQ for raspberry syrup? If Meyer orders the EOQ quantity
each time, what will be the inventory turnover rate for raspberry syrup?
D= annual demand, U = unit cost, Co = Order cost, Ci = inventory carrying cost
D= 30 x 52 = 1560, U =8, Co= 50, Ci= .20
EOQ= 2 x 1560 x 50/ 8 x .20 = 156000/1.6 = 97500 97500= 312.25 -> 312
Inventory Turnover Rate= unit sales/ average inventory = 1560/ 312 = 5.0

C7P14:
Johnson Corporation has the following information about a product that it carries in stock:
Average Demand: 40 units/day Average Lead Time = 15 days Item unit cost = $55 (orders less than
400), $50 (orders of 400 or more) Ordering cost= $30 Inventory carrying cost = 20%
Business year = 300 days St. dev. Demand = 2.5 units St. dev. of lead time =1.5 days
Desired Service level = 97.5%
A. What it the total acquisition cost of ordering at the $55 price?
EOQ = 2 x 12000 x 30 / 55 x .2 = 720000/ 11 = 65454.55 65454.54 = 255.84 -> 256
Annual Ordering Cost = 30 (12000/256 ) = 1406.25
Annual Inventory Carrying Cost = 55 x .2 (256 /2) = 1408
Annual Product Cost = 55 x 12000 = 660,000
TAC = $662,814.25
B. What is the total acquisition cost of ordering at the $50 price?
EOQ = 2 x 12000 x 30 / 50 x .2 = 720000/ 10 = 72000 72000 = 286.33 -> 400
Annual Ordering Cost = 30 (12000/400 ) = 900
Annual Inventory Carrying Cost = 50 x .2 (400 /2) = 2000
Annual Product Cost = 50 x 12000 = 600,000
TAC = $602,900
C. What level of safety stock should Johnson maintain for this item?
ddlt = 15 (2.5^2) + (40^2)(1.5^2) = 93.75 + 3600 = 3693.75 -> 3693.75 = 60.78
SS = z (ddlt) = 2.5 (60.78) = 151.94
D. If Johnson chooses the ordering policy that results in the lowest total acquisition cost, and
maintains the safety stock level for 97.5% service, what will Johnsons average inventory be for this
item?
Average inventory = Q/2 + SS = 400/2 + 3.75 = 200 + 151.94 = 351.94 -> 352 units
E. What will annual inventory turnover rate be for this item?
Inventory turnover = unit sales/ average inventory = 12000/352 = 34.09 turns
F. What will the reorder point be for the item?
ROP = (d * t) + SS = (40 x 15) + 151.94 = 751.94 units
C7P17:
Freeport Corporation finds that demand for surfboards has average demand of 10 units per day, with
a standard deviation of 3 units. Lead time from the supplier averages 12 days, with a standard
deviation of 2 days. The item costs $50 and the inventory carrying cost is 30%.
A. Suppose management decides to offer a 95% service level; that is, it is willing to experience a
stockout probability of 5 percent during the order cycle. How much safety stock should be carried?

B. How much is the annual inventory carrying cost of the safety stock because of this decision?

C. You decide that you want this company to give better service to its customers. You decide that a
99% service level is appropriate. How much safety stock must be carried to offer this service level.

D. What is the additional inventory carrying cost that will be incurred on this item because of your
decision to increase the service level?

E. What will the reorder point be for the company if your decision is implemented?

C7P21:
Jaspers Grocery places an order for Monster every 3 weeks. Once the order is placed, delivery to the
store typically occurs in one week. Average demand is 100 cases per week and the standard deviation
of demand is 20 cases per week. The store policy is to stock an amount of inventory that allows for an
average stockout condition of 10 percent while waiting for replenishment. It is time to place an order,
and there are 420 cases on hand. How many units should be ordered?

C7P26:
You are the buyer for your university bookstore. One of the textbooks has a cost to you of $100 and
you sell it to students for $140. Any copies of the book that you order and do not sell to students can
be returned to the publisher for an average of $80 credit. (Sometimes you can get full credit, but
sometimes a new edition is published so you get no credit). In one particular course, demand has
averaged 400 books each semester, with a standard deviation of 40. What is your target service level?
What is your target order quantity for the course?

C11P2:
A. Suppose you have a package weighing 15 pounds that needs to be shipped to zone 5. The value of
material is $10,000 and the annual inventory holding rate is 40% of the product value. Which
transportation mode (air or ground) minimizes the total shipping and transit inventory cost?
Next day cost = $68.25 Ground (5 days) = $11.15
cost of carrying (next day) = 1 day/365 days ($10,000) (.4) = $10.96
Total cost (next day)= 68.25 + 10.96 = $79.21
cost of carrying (ground) = 5 days/ 365 days ($10,000)(.4) = $54.79
Total cost = 11.15 + 54.79 = $65.94
Ground shipping minimizes the total shipping and transit cost.
B. How high would the inventory holding rate have to be in order to justify next day air service?
79.21- 11.15 = 68.06 -> 5/365 (10,000) (x) = 68.06 -> (5/365)x = .006806 -> x = .497 = 49.7%
C11P5:
You are shipping 200 diamonds to a customer located 2,000 miles away. The average value of the
diamonds is $1,500. You can ship via air for $500 and the diamonds will arrive in two days or you can
ship via a specialty ground carrier for $200 and the diamonds will arrive in 6 days. You figure your
inventory carrying cost is 25%. Your customer will immediately transfer funds to your bank account on
the receipt of the shipment. What is your total cost if you use the ground carrier? The air carrier?
What other considerations are involved besides the cost?
Ground: $1,432.88
Air: $910.96
Other considerations involved besides cost are the availability of these modes of transportation,
customer desire for rapid delivery, and their dependability. If the customer wants the diamonds
delivered as soon as possible and to ensure their safety, air is probably the best option. Although
there are chances of delays, air transportation will probably deliver the diamonds more quickly with
less handling and chances of damaging these expensive items.

C11P12:
Using the center-of-gravity method, determine the latitude and
longitude of the best location for the distribution center. Use Google
Maps or some other resource to plot the location. Then suggest other
factors to recommend a location for the distribution center.

Metropolitan Approx. Approx. Approx.

area Latitude Longitude Population
Atlanta 33.75 -84.39 5.4 million
Dallas 32.8 -96.77 6.5 million
St. Louis 38.62 -90.2 2.8 million

Latitude coordinate: (33.75)(5,400,000) + (32.8)(6,500,000) + (38.62)(2,800,000) / 5.4m + 6.5 m + 2.8 m

= 182,250,000 + 213,200,000 + 108,136,000 / 14,700,000 = 503,586,000 / 14,700,000 = 34.26
Longitude Coordinate: (-84.39)(5.4m) + (- 96.77) (6.5m) + (-90.2)(2.8m) / 14,700,000 =
-455,706,000 + -629,005,000 + -252,560,000 / 14,700,000 = -1,337,271,000/ 14,700,000 = -90.97
Location: (34.26, -90.97) => Gauzley Bayou, Arkansas
Other factors to consider include labor laws (minimum wage, unions, etc.), distance from major
highways and airports, and tax rates in each given state.

C11: Lear Corporation:

1. What elements define value for the customers of the Romulus plant?
Customers of the Romulus plant find value in assembly timing (Just-In-Time), delivery speed (5 hour
window after the order is placed), and sequence (order in which seats are placed).
2. What is the role of logistics and logistics considerations in the success of the Romulus plant? In your
answer, focus on such issues as information processing, warehousing, mode of transportation, and
network design.
Lear Corporation does an effective job of managing their logistics in a manner that allows them to
produce their products in a timely fashion for their customers. Lear starts by implementing a JIT
system for processing orders. In order to accommodate this system, Lear assembles, tests, sequences,
and delivers seats within a 5 hour window after an order is placed. In order to meet these demands,
Lear has rethought the production line by utilizing cross trained employees that are linked to the
Warren plant. Lear also stores its materials in trailers that come from their suppliers in Mexico. All of
the material is bundled and sequenced by a daily schedule so it can be brought in as needed. When
the seats are finished, they are stored on-site to ensure that seats are properly sequenced.