Question 1:

There are 5 major manufacturing stages in the production of an item. Consider an item that is used in a
mature product and whose demand for the next year is projected to be 100,000 units. The setup cost for
the 5 processes is $1000, $1200, $2500, $700 and $200 per setup, respectively. The on-hand inventory
holding cost at these stages is equal to $1.2, $1, $0.7, $0.2, and $0.1, respectively. Assuming the
production system to be a serial system, determine the optimal PO2 policy. Assume a base planning
period of a week.

5 4 3 2 1

Question 2:

A regional retail chain receives shipments from manufacturers at its central warehouse and in turn
sends the shipments to the retail stores. Consider a system having five retail stores and a single item.
The annual demand for this item is 200 at store 1, 300 at store 2, 200 at store 3, 400 at store 4, and 500
at store 2. The holding cost rate at each of the stores is .20 and the cost of this item at the time of
entering a store is $45 per unit. The holding cost rate for the central warehouse is .1 and the cost of an
item at the time it enters the warehouse is estimated to be $35. The fixed cost to place an order is $600
for the warehouse, $150 for the retail store 1,2, and 3 and $250 for the retailer store 4, and $300 for
the retailer store 5. Assuming a base planning period of 2 weeks and a year consisting of 52 weeks,
determine the optimal PO2 policy for each of the retail stores and the central warehouse.