Homework #4

206513 Applied Quantitative Sciences in Industrial Engineering

Pornpunsa Wuttisanwattana
1. Textbok 12.18 --Creative Coffees sells about 100 tons of roasted coffee beans each year to supermarkets. The company's importer charges $1/pound plus $300/order. Once an order is placed, it takes 4 weeks for Creative's South American partner to roast the beans, clear them through custom, and get them to Creatives plant. An additional $ 50 covers the clerical ans other costs associated with placing an order. Assuming an annual carrying rate of i = 0.25 per year, use the EOQ formulas to determine the following:

a. The optimal order quantity Q* Solution D= 200,000 350 lbs /yrs $/order L= 4 wks = I= 0.25 0.08 yrs per year C = 1 $/lbs

K = 300 + 50 $/order =

For EOQ Model Q* = sqrt (2DK/iC) = 23664.32 Lbs 10.73 tons

Therefore, the order for each time is placed of 24845.3 Lbs or b. The reorder point R R =D * L = 15384.62 Lbs or 6.98

tons

Therefore, the reorder is processed when the quantity in inventory is 16,958.5 lbs or 7.5923 tons c. The number of orders per year Number of reorder per = D/Q* = 8.45 Time

Therefore, the average number of order per year is 9 times/yrs d. The total annual cost ( excluding the Purchasing Cost) Total Cost = Ordering Cost + Purchasing Cost + Holding Cost = K*(D/Q) = 2958.04 = 205,916 + C*D + $ + i*C*(Q/2) + 2958. 04

200000

Due on July 9,11

arkets. The Creative's South ditional $ 50 of i = 0.25 per

2. Textbook --12.19 The importer in 2.18 has told Creative coffees that for an additional $200 per order, she can reduce the lead time to 2 weeks. Should the company pay the additional money? Explain Lead time does not affect the total cost ====> Don't pay ( don't need to cal)

3. Textbook -- 12.20 Prior to obtaining the results in 2.18, Creative Coffees had been ordering 10 tons of beans each time. What would the carrying rate have to be for this order quantity to be optimal according to the EOQ Formula? Explain From D = K= 200000 lbs /yrs 350 $/order
Q*2 =

L= I=
2*D*K i*C

0.08 yrs 0.25 per year

C = Q =

1 $/lbs 20000 Lbs

2*D*K Q*2 * C

= Ans

0.35

If Q is 10 tons to keep the total cost the same or close to the orginal value the carrying rate (i) should be 35 cent/year

4. Textbook -- 12.21 If the carrying rate is i=0.25 per year how much money is saved each year using the optimal quantity in 2.18 instead of 10 tons of beans per order? From D = K= 200000 lbs /yrs 350 $/order L= I= 0.08 yrs 0.25 per year C = Q = 1 $/lbs 23664.32 Lbs

Orginal Total Cost = Ordering Cost + Purchasing Cost + Holding Cost = K*(D/Q) + C*D + i*C*(Q/2) = 2958.04 + 200000.00 + = 205916.08 $ if Q* = 20000 Total Cost = Ordering Cost + Purchasing Cost + Holding Cost = K*(D/Q) + C*D + i*C*(Q/2) = 3500.00 + 200000.00 + = 206000.00 $ 206000 205916.08

2958.04

2500.00

Ans

the total annual will be saved for

83.92

$/year

5. Textbook-- 12.23 Assume now that the demand for the problem of Creative Coffees in 2.18 is probabilistic, with an expected value of 100 tons of beans per year and a standard of 25,238.85 pounds. Compute the following by hand: 220460 = S.D (D)= 25238.85 Lbs

a. The optimal order quantity Ans Same as 1.) becoz = D in problem 1 of 23664.32 Lbs b. The mean and standard deviation of the demand during the lead time L = * L = 16958.46 L = * sqrt(L) = 7000.00 c. The amount of safety stock needed to ensure no more than two stockouts during a year Number of order 8.45 time /yrs <= 2 time Stockout/yrs 23.67 % = 1-0.2366= 0.7633 S = z *L = Norminv(,0,1)*L From L= 0.08 yrs

d. The total annual cost of the optimal continuous-review inventory policy Total Cost = Ordering Cost + Holding Cost = K*D/Q + (Q/2 +S) *I C

6. Textbook -- 12.24 How often should the management of Creative Coffees in 12.23 expect stockouts if the safety stock is 6500 ponds of beans? S= Norminv(,0,1) * L Norminv(,0,1) Normsdist of (0.9286) = = 0.82 = = or 6500 0.9286 82.34 % SERVICE LEVEL

Expected Stockout = * Number of orders

7. Textbook -- 12.25 Assume that management of Creative Coffees has budgeted $1500 for annual holding costs for safety stock a. What level of Safety stock can management afford? Ans From Safety Stock Cost = S *i C S Therefore, the quantity of saety stock is b. What frequency of stockouts can be expected per year S= Norminv(,0,1) * L Norminv(,0,1) Normsdist(0.89251)= = 0.8139 = = or 6000 0.89 81.39% L = 6722.65 = = 1500 6000 $ Lbs

6000 Lbs

Expected No. of Stockout = (1- ) * Number of orders

8. Textbook -- 12.26 Management of Creative Coffees in 12.23 wants to maintain a service level of 80% but cannot store a safety stock in excess of 5000 pounds. One way to achieve this goal is to negotiate a shorter lead time with the supplier. Use your computer to determine by how much the lead time needs to decrease from its current value of 4 weeks 25238.8 = 5 Data Norminv(,0,1) * L S = S/L Norminv(,0,1) = 0.842 L L L L= = = = = 5000/L 5940.91 * sqrt(L) (L/)2 0.06 Year or = 0.8

2.88 wk 2.88 Weeks

Ans The Lead time should be reduced to