Homework: Batching and EOQ

Operations Management
Instructor: Cuihong Li

Name: _____________________(last) , ______________________(first)

Instruction:

1) Print your name above.

2) This is individual work. You may discuss with others, but you must complete the assignment
independently.
3) Please submit an electronic copy to HuskyCT before deadline.
4) You need to present not only the answer to each question but also how the answer is reached,
for example, the formula, calculation, and explanation when necessary.
5) Total points: 13

1. JCL Inc. is a major chip manufacturing firm that sells its products to computer manufacturers like Dell,
HP, and others. In simplified terms, chip making at JCL Inc. involves three basic operations:
depositing, patterning, and etching.
 Depositing: Using chemical vapor deposition (CVD) technology, an insulating material is deposited
on the wafer surface, forming a thin layer of solid material on the chip.
 Patterning: Photolithography projects a microscopic circuit pattern on the wafer surface, which
has a light-sensitive chemical like the emulsion on photographic film. It is repeated many times as
each layer of the chip is built.
 Etching: Etching removes selected material from the chip surface to create the device structures.
The following table lists the required processing times and setup times at each of the activities.
There is unlimited space for buffer inventory between these steps. Assume that the unit of
production is a wafer, from which individual chips are cut at a later stage.
Process Step 1 Depositing 2 Patterning 3 Etching

Setup time 0 min. 30 min. 0 min.

Processing time 0.45 min./unit 0.25 min./unit 0.30 min./unit

a. What is the bottleneck activity and process capacity (in units per hour) with a batch size of 100
wafers? (2’)

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b. What is the bottleneck activity and process capacity (in units per hour) with a batch size of 200
wafers? Would you consider a batch size of 200 wafers (assuming any batch size can be chosen)?
Why or why not? (3’)

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2. Millennium Liquors is a wholesaler of sparkling wines. Their most popular product is the
French Bete Noire. Weekly demand is for 45 cases. Assume demand occurs over 50 weeks
per year. The wine is shipped directly from France. Millennium's annual cost of capital is 15
percent. Below are relevant data on the costs of purchasing, shipping and handling, and
refrigeration.
· Purchasing cost per case: $120
· Shipping cost (for any size shipment): $290
· Cost of labor to place and process an order: $10
· Refrigeration cost per case per year: $7

a. Calculate the annual holding cost for one case of wine. (1’)

b. Calculate the fixed ordering cost for each order (and shipment). (1’)

c. Use the EOQ model to find the number of cases per order. (2’)

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d. Based on your answer in part b, what is the average inventory level (in the number of
cases) and average number of orders per year? (2’)

e. Based on your answer in part b, what is the annual inventory-related cost (including
inventory carrying and ordering costs)? (2’)