Quantitative Methods in

Business QBA 851

Project

Prepared By:
Tarek Assaf
200601390
Due Date: 17/12/2019

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 LEBANESE AMERICAN
QBA 851 – Fall 2019
UNIVERSITY
Quantitative Methods in Business

Tuesday, December 10, 2019

Instructions

1- Submission deadline is Tuesday, December 17, 2019, at 11:59 PM

2- Submit one word file via blackboard message
3- Projects submitted to my personal email will not be accepted
4- Solve all problems
5- The word file submitted should include a title page
6- Start each problem on a new page with the statement of the problem
followed by the solution
7- Use POM-QM to perform the calculations
8- Copy and paste the POM-QM input and output of each problem in the
appropriate place within your solution
9- Work individually
10- Plagiarism will not be tolerated
11- Good luck

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1. (25 Points) The annual demand for an item is 20000 units and the ordering cost is
$200. The holding cost is $2 per unit per year and the unit purchasing cost is $10.
There are 250 working days per year.
a) Determine the optimal ordering Policy.
b) Determine the optimal order policy if the unit the lead time is 20 days.
c) Suppose that the current policy is to order exactly 2500 units each time an order is
placed. Find the annual savings if the optimal policy is adopted.

Solution:

D= 20000 units/year
Co = $200
Ch= $2/unit/year
C = $10/unit
(250 Day/year)

A) The POM-QM output is:

The optimal ordering policy is to order 2000 units every 25 days whenever the inventory
level reaches 0. This policy results in a minimum total inventory cost of $204,000 per
year, which is consisted of Unit costs of $200,000 and Total inventory of $4,000
(ordering cost 2,000 and holding cost 2,000)

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 B) The POM-QM output is:

Interpretation:
T = Q/D = 2000/20000 = 1/10
T = 1/10*250 = 25
Time>Lead Time, 25>20
We have to place an order at R which is the re-order

Lead in years *D
20/250 * 20,000 = 1,600

Where the optimal ordering policy calls to order 2000 units every 20 (lead time) day
whenever the inventory level reaches 1600(L*D) units. The optimal policy results in a
minimum inventory cost of $204,000.

C)

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Q* = 2000, TCU (Q*) = 204,000
Q = 2500, TCU (2500) = CD + CoD/Q + Ch Q/2 =10*20,000 + 200*20,000/2500
+2*2500/2 = $ 204,100 more than $ 204,000
When the ordering quantity increases, the ordering cost decrease, holding cost increase,
the total cost will increase.

If we adopt the optimal policy, then we will save $204,100 – $204,000 = $ 100

2. (10 Points) The daily demand for a certain product is 400 units. The production rate is
1200 units per day and a cost of $1500 is incurred each time the machines are setup

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 for production. The storage cost is $0.2 per item per day and the production cost is $5
per unit. Determine the optimal production policy quantity.

D=400 units/day
P= 1200 units/day
Co = $1500
Ch= $0.2/unit/day
C= $5/unit

Solution

The POM – QM output is

T=Q/D = 3000/400 = 7.5 days

The optimal production policy is to produce 3000 units every 7.5 days. This cost in a
maximum inventory of $ 2400 where the production cost per day is $2,000, with total
inventory cost is $400(annual setup cost $200 & annual holding cost $200).

3. (25 Points) Below are the data for a Time-Cost CPM Scheduling model analysis. The
time is in days and the costs include both direct and indirect costs.

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 Immediate Normal Crash Normal Crash
Activity Predecessor Time Time Cost Cost
A None 3 2 $200 $400
B A 3 1 $300 $500
C B 5 3 $200 $300
D A 7 4 $200 $500
E C and D 2 1 $500 $900
a) Use the normal costs and durations to find the total duration of the entire
project, total cost, Earliest/Latest Start and Finish as well as the slack of of
each activity.

Total duration 13 days

Solution:

POM-QM output is:

The total duration of the project is 13 days and the total cost is $200+$300+$200+$200+
$500 = $ 1,400
The earliest and latest start date and the slack is shown in this table.

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 b) Crash this project to reduce the total time to the minimum duration. Provide
the total duration and cost at each step.

POM-QM output is:

Interpretation:
We can see that we have normal cost as $1,400 before crashing, so if we want to finish
the project faster and did all the crashing activities then we will pay $1,200 more so the
total cost is $1,400+ $1,200 = $2,600

Interpretation:

1st step we crash C. project time will be 12 days with cost = $1,400 + $50 = $1,450
2nd step we crash C & D. project time will be 11 days with cost = $1,450 + $150= $1,600
3rd step we crash B & D. project time will be 10 days with cost =$1,600 + $200 = $1,800
4th step we crash B & D. project time will be 9 days with cost = $1,800 + $200 = $2,000

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5th step we crash A. project time will be 8 days with cost = $2,000 + $200 = $2,200
6th step we crash E. project time will be 7 days with cost = $2,200 + $400 = $2,600

c) Find the schedule with the minimum total cost if the direct cost is $200/day.

Indirect cost of $200 / day

Schedule Duration Direct Indirect Total Cost
1 13 1400 2600 4000
2 12 1450 2400 3850
3 11 1600 2200 3800
4 10 1800 2000 3800
5 9 2000 1800 3800
6 8 2200 1600 3800
7 7 2600 1400 4000

Interpretation:
We will stop at schedule 6 (5th crash) because schedule 3,4,5,6 have the same total cost of
$3,800 but schedule 6 will make us finish the project in 8 days which is the fastest period.

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4. (25 Points) Libby Temple Manufacturing has three factories (X, Y, and W) and three
warehouses (A, B, and C). The following table shows the shipping costs between each
factory and warehouse, the factory manufacturing capabilities (in thousands of units),
and the warehouse capacities (in thousands of units).

A B C PRODUCTION
CAPACITY
X $6 $5 $3 6
Y $8 $10 $8 8
W $11 $14 $18 10
CAPACITY 7 12 5

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 A) Find the starting solution using the North-West Corner method.

Transfer 1,000 truckloads from factory X to warehouse B

Transfer 5,000 truckloads from factory X to warehouse C
Transfer 8,000 truckloads from factory Y to warehouse B
Transfer 7,000 truckloads from factory W to warehouse A
Transfer 3,000 truckloads from factory W to warehouse B

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 Iteration 1

1st (-9) + (entering), 2nd (5)- (leaving), 3rd (5) +, 4th (7)-, 5th (1) +, 6th (6) –

Iteration 2

1st (-3) + (entering), 2nd (2)-, 3rd (6) +, 4th (1)- (leaving)

Iteration 3

1st (-1) + (entering), 2nd (7)- (leaving), 3rd (1) +, 4th (10)-

The loop is found in above table.

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 B) Find the starting solution using the Least Cost method.

Source 1 (X)
Source 2(Y)
Source 3(W)
Destination 1(A)
Destination 2(B)
Destination 3(C)

Transfer 1000 truckloads from factory X to warehouse B

Transfer 5000 truckloads from factory X to warehouse C
Transfer 8000 truckloads from factory Y to warehouse B
Transfer 7000 truckloads from factory W to warehouse A
Transfer 3000 truckloads from factory W to warehouse B

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 C) Repeat part (a) if the demand for warehouse B is now 14.

Transfer 1000 truckloads from factory X to warehouse B

Transfer 5000 truckloads from factory X to warehouse C
Transfer 8000 truckloads from factory Y to warehouse B
Transfer 7000 truckloads from factory W to warehouse A
Transfer 3000 truckloads from factory W to warehouse B
2000 is not transferred

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 5. (15 Points) The Orange Top Cab company has a taxi waiting at each of four cab
stands in Evanston, Illinois. Four Customers have called and requested service.
The distances, in miles, from the waiting taxis to the customers are given in the
following table.

CUSTOMER
CAB SITE
A B C D
Stand 1 7 2 4 8
Stand 2 5 4 6 5
Stand 3 6 7 9 6
Stand 4 8 6 7 4

a) Find the optimal assignment of taxis to customers so as to minimize total driving

distances to the customers.
b) A new stand (Stand 5) is now available with waiting times of 6, 4, 9, and 12. Find
the new optimal assignment of taxis to customers so as to minimize total driving
distances to the customers.

A)

Job 1 is Stand 1
Job 2 is Stand 2
Job 3 is Stand 3
Job 4 is Stand 4
Machine 1 is A
Machine 2 is B
Machine 3 is C
Machine 4 is D

Minimum distance 18 miles

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Assign 2 taxis for customers from point B to go to stand 1
Assign 6 taxis for customers from point C to go to stand 2
Assign 6 taxis for customers from point A to go to stand 3
Assign 4 taxis for customers from point D to go to stand 4

If customers from point A went to Stand 1 distance will increase by 4 miles

If customers from point D went to Stand 1 distance will increase by 7 miles
If customers from point B went to Stand 2 distance will not change.
If customers from point D went to Stand 2 distance will increase by 2 miles
If customers from point B went to Stand 3 distance will increase by 2 miles
If customers from point C went to Stand 3 distance will increase by 2 miles
If customers from point D went to Stand 3 distance will increase by 2 miles
If customers from point A went to Stand 4 distance will increase by 2 miles
If customers from point B went to Stand 4 distance will increase by 1 miles

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B)

We assign 4 taxis to get customers from point C to stand 1

We assign 5 taxis to get customers from point A to stand 2
We assign 4 taxis to get customers from point D to stand 4
We assign 4 taxis to get customers from point B to stand 5

Stand 3 stays un assigned

Thank you,
Tarek Assaf

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