December 13, 2019

IE 323 – Production and Service Operations Planning I

Recitation 6

Due to a rapid increase in the demand for their calculators from the students, some assistants of the
METU IE department have decided to start a company which will sell calculators to the students at
reasonable prices. Due to an observation for the last few months, it has been observed that the
demand for calculators is 25/month. The calculators will be supplied by a domestic company which
specially designs them according to the IE students’ needs. The cost of calling the supplier is 3 TL
and the transportation cost of the products, which is also incurred by the assistants, is 45 TL,
regardless of the quantity ordered. The supplier also charges 25 TL for each calculator ordered. If the
capital invested in this business were invested in a bank, it would return 28% annually.
Assume that we want to use an economic order quantity model for this problem.
a. Find the optimal order quantity and optimal time between orders.

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b. In order to make more profit, the assistants are considering ordering the calculators from far
eastern countries and it takes a month for the supplier to transport the calculators. What happens to
the optimal order time and quantity in this case? What if the lead time was four months?

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c. The domestic supplier gives the opportunity of a discount in the following form:

What is the new optimal order quantity in this case?

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d. Now assume that there are infinitely many not working calculators in the assistants’ rooms and as
they are a group of engineers, they decided to repair and sell to the students with a cheaper price.
The assistants repair 30 calculators/month. For each calculator they repair, they need to pay 15 TL
for the parts to be replaced. In addition, regardless of the quantity, the assistants need to pay 30 TL
to arrange the supplier and transportation of the parts. What is the optimal repair quantity?