Solution:

a) ROP = Expected demand during lead time + Safety stock

ROP = Expected demand during lead time + zαdLT

Z = no of std. deviation for service level

Stock out risk = 1%

Service level = 100 – 1 = 99%, z (99%) = 2.33

αdLT = 30 units

ROP = 300 + 2.33 x 30 = 370 units

b) Safety stock = zαdLT = 2.33 x 30 = 70 unit

c)

Stock out risk = 2%

Service level = 100 – 2 = 98%, z (98%) = 2.06

Safety stock = zαdLT = 2.06 x 30 = 62 unit

Safety stock with 2% stock out risk is less than that of 1% stock out risk.
a)

ROP = Expected demand during lead time + Safety stock

ROP = Expected demand during lead time + zαdLT

Expected demand during lead time = 300 units

Std. Dev. of lead time demand, αdLT= 30 unuts

Stock out risk = 1%

Service Level = 100 – 1 = 99%

Z(99%)= 2.33

ROP = Expected demand during lead time + zαdLT = 300 + 2.33 x 30 = 370 unit

b) Safety stock = zαdLT= 2.33 x 30 = 70 unit

c) Stock out risk = 2%

Service level = 98%

Z (98%) = 2.06

Safety stock = 2.06 x 30 = 62 units

Therefore safety stock amount with 2% acceptable stock out risk is less than that for 1% risk.

2. A home appliances manufacturer usage 48,000 motors per year for its blender series.
The firm makes its own motors, which it can produce at a rate of 600 per day. The blenders
are assembled uniformly over the entire year and it operates 240 days per year. Monthly
carrying cost is $0.6 per motor. It takes a full day to setup the system for a production run
at a cost of $288. -
a) If the motors are periodically produced in batches of 3000 units, what penalties is the
firm incurring at this production level? What is your recommended run size? (4 points)
- b) Compute the
maximum inventory level at your recommended run size. What will be the inventory level
after 6 days from the start of a run? (2 points)
- c) The same process
that is used to make the motor could also be used to make a component for another firm.
That job would require nine days, including setup time. Is there enough time to do this job
between production of batches of motors? Explain (2 point) -
d) Suppose the manager decides to increase the run size of the new product. How many
additional units would be needed to just accommodate the other job? How much will that
increase the total annual cost? (2 point)

Soltion
a)
D = 48000 units/year
S = $288/run
H = $0.6 x12 = $7.2/unit-year
P = 600 units/day
u =48000/240 = 200 units/day
EPQ = SQRT(2DSp/H(p-u)) = SQRT( 2 x 48000 x 288 x 600/(7.2 x (600-200)) = 2400 units/run
Cost (Q = 2400) = DS/Q + HQ(p-u)/2p = 48000 x 288/2400 + 7.2 x 2400 x (600-200)/(2x600)
= $11520
Cost (Q = 3000) = 48000 x 288/3000 + 7.2 x 3000 x (600-200)/(2x600) = $11808
So penalty incurring = 11808 -11520 = $288
Recommended run size = 2400 units/run
b) Imax = (p-u) x Q/p = (600 -200) x 2400/600 = 1600 units
Run time = Q/p = 2400/600 = 4 days
Cycle time = Q/u = 2400/200 = 12 days
Inventory level after 6 days = ( 4 x 600 – 6 x 200) = 1200 units
c) Idle time = 12 -4 = 8 days
Required time = 9 + 1 = 10 days
Since required time is more than available time so there is not enough time to do the other
job
d) Required time to accommodate the other job is 10 days
So production time per run would be = 12 – 10 = 2days
Production size = 2400 units
Rate of production = 2400/2 = 1200 units/day
Cost = 48000 x 288/2400 + 7.2 x 2400 x (2400 – 200)/2 x 2400 = $13680
Increase in cost = 13680 – 11520 = $2160.

a)
ROP = Expected demand during lead time + Safety stock
ROP = Expected demand during lead time + zαdLT
Expected demand during lead time = 300 units
Std. dev. of lead time demand, αdLT = 30 units
Risk of stock-out = 1%
Service level = 100 – 1 = 99%
No. of std. dev. Z (99%) = 2.33
ROP = Expected demand during lead time + zαdLT = 300 + 2.33 x 30
= 370 units
b) Safety stock = zαdLT= 2.33 x 30 = 70 units
c) risk of stock out = 2%
Service level = 100 – 2 = 98%
Z (98%) = 2.06
Safety stock = zαdLT= 2.06 x 30 = 62 units
A risk of stock out of 2% require less safety stock than 1% stock out risk.
Solution:
a)
d = 21 g/week, αd = SDd = 3.5 g/week, Lead time, LT = 2 days = 2/7 weeks
αlt =Sdlt = 0
Service level = 90%, z(90%) = 1.28

ROP = 21 x 2/7 + 1.28 x SQRT(2/7 x 3.5 x 3.5 + 21 x 21 x 0 x 0)

ROP = 6 + 1.28 x 1.87 = 8.39 gallons
Days supply on hand = 8.39/(21/7) = 2.8 days

b)
d = 21 g/week = 3 g/day
OI = Order interval = 10 days
LT = lead time = 2 days
αd = 3.5 g/week = 0.5 g/day
Service level = 90%, Z(90%) =1.28
Amount on hand at the time of order, A = 8 gallons
Amount to order = 3 x (10 +2) + 1.28 x 0.5 x SQRT(10+2) – 8 = 30.22 gallons

ROP = 8 gallons
8 = 21 x 2/7 + z x SQRT(2/7 x 3.5 x 3.5 + 3 x 3 x 0 x0)
8 = 6 + 1.87 x Z
Z = 2/1.87 = 1.07
Service level = 0.8577 = 85.77%
Risk of stock out = 100 – 85.77 = 14.23%

c)

ROP = 8.39 – 2 = 6.39

6.39 = 21 x 2/7 + z x SQRT(2/7 x 3.5 x 3.5 + 3 x 3 x 0 x0)
6.39 = 6 + 1.87 x Z
Z = 0.39/1.87 = 0.21
Probability of service level = 0.5832 = 58.32%
Risk of stock out = 100 – 58.32 = 41.68%
a)

D = 360 x 10 = 3600 rolls/year

S = $1/order

H = $0.40/roll

EOQ, Q = SQRT(2 x 3600 x 1/0.4) = 134.2 rolls = 134 rolls

b) Service level = 96%, z (96%) = 1.75

d = 10 rolls/day,
αd =SDd = 2 rolls/day
LT = 3 days
αlt = 0

ROP = 10 x 3 + 1.75x SQRT(3 x 2 x 2 + 10 x 10 x 0 x0) = 30 + 6.06 = 36 rolls

c) Probability of stock out = 1 -0.96 =0.04

Probability of short per year = 3600 x 0.04 = 144 rolls

No of cycle = D/Q = 3600/134 = 27

Probability of short per cycle = 144 rolls/27 = 5.34 rolls

d)
E(z) = Standardized short = 0.016 ( for 96% service level) from table 13.3

σdLT= SQRT(3 x 2 x 2 + 10 x 10 x 0 x0) = 3.46

Q = EOQ =134 rolls

Annual service level = 1 – 0.016 x 3.46/134 = 0.998

Solution

a)

d = 21 gallons/week, σd = 3.5 gallons/week, LT = 2 days = 2/7 weeks, σLT = 0

Service level = 90%, z (90%) = 1.28

ROP = 21x2/7 + 1.28 x SQRT(2/7 x 3.5 x3.5 + 21 x 21 x 0x0) = 6 + 2.39 = 8.39 gallons

Days of supply = 8.39/(21/7) = 2.8 days

b)

d = 21 gallons/week, σd = 3.5 gallons/week, LT = 2 days = 2/7 weeks, σLT = 0

Service level = 90%, z (90%) = 1.28

OI =Order interval = 10 days = 10/7 weeks

A = 8 gallons

Amount to be ordered = 21 x (10/7 + 2/7) + 1.28 x 3.5 x SQRT(10/7 + 2/7) – 8 =36 + 5.87 – 8 = 33.87 gallons

ROP = 8 gallons

8 = 21x2/7 + z x SQRT(2/7 x 3.5 x3.5 + 21 x 21 x 0x0)

8 = 6 + z x 1.87

Z = (8-6)/1.87 = 1.07

Probability (z = 1.07) = 85.77%

Servile level = 85.77%

Probability of stock out = 100 – 85.77 = 14.23%

c)

ROP = 8.39 -2 = 6.39 gallons

6.39 = 21x2/7 + Z x SQRT(2/7 x 3.5 x3.5 + 21 x 21 x 0x0)

6.39 = 6 + z x 1.87

Z = (6.39 -6)/1.87 = 0.21

Probability (service level) = 58.32% (service level)

Probability of stock out = 100 – 58.32 = 41.68%

a)

Demand, D = 10 x 360 = 3600 rolls/year

S = $1/order

H = $0.40/roll-year

EOQ, Q = SQRT(2DS/H) = SQRT(2 x 3600 x 1/0.4) = 134 rolls

b)

d = 10 rolls/day, σd = 2 rolls/day, LT = 3 days, σLT = 0

Service level = 96%, z(96%) = 1.75

ROP = 10 x 3 + 1.75 x SQRT(3 x 2 x 2 + 10 x 10 x 0 x0) = 36 rolls

c) Probability of stock out = 100 -96 = 4% = 0.04

Unit short per year = 3600 x 0.04 = 144 rolls

No. of cycles = D/Q = 3600/134 = 27

Unit short per cycle = 144/27 = 5.34 rolls

d)

Annual service level = SLannual =?

Q = EOQ = 134 rolls

σdLT =SQRT(3 x 2 x 2 + 10 x 10 x 0 x0) = 3.46

Service level = 96% = 0.96

E(z) = 0.016 (from table 13.3)

Annual service level, SLannual = 1 – 0.016 x 3.46 /134 = 0.9996 =99.96%

Solution

a)

d = 21 gallons/week, σd = 3.5 gallons/week, LT = 2 days = 2/7 weeks, σLT = 0

Service level = 90%, Z (90%) = 1.28

ROP = 21 x 2/7 + 1.28 x SQRT(2/7 x 3.5 x 3.5 + 21 x 21 x 0 x 0) = 6 + 2.39 = 8.39 gallons

Days of supply = 8.39/(21/7) = 2.8 days

b)

OI = order interval = 10 days=10/7 weeks, A = stock amount = 8 gallons

Order Qty = 21 x (10/7 + 2/7) + 1.28 x 3.5 x SQRT(10/7 + 2/7) – 8 = 36 + 5.87 – 8 = 33.87 gallons
ROP = 8

8 = 21 x 2/7 + z x SQRT(2/7 x 3.5 x 3.5 + 21 x 21 x 0 x 0)

8 = 6 + 1.87 x Z

Z = (8-6)/1.87 = 1.07

Probability of service level = 0.8577 = 85.77%

Probability of stock out = 100 – 85.77 = 14.23%

c)

ROP = 8.39 – 2 = 6.39 gallons

6.39 = 21 x 2/7 + z x SQRT(2/7 x 3.5 x 3.5 + 21 x 21 x 0 x 0)

6.39 = 6 + z x 1.87

Z = (6.39 -6)/1.87 = 0.21

Service level = 0.5833 = 58.33%

Probability of stock out = 100 – 58.33 = 41.67%

(ROP = 5.5

5.5 = 6 + z X 1.87

Z = (5.5 -6)/1.87 = -0.27

Z = 0.27, Probability = 60.67%

Z = -0.27 Probability = 100 – 60.67 = 39.33% (service level)

Z => 3.9, Probability =100%

Z <= -3.9, Probability =0%)

Solution

a) D = 360 x 10 = 3600 rolls/year, H = $0.4/roll-year, S = $1/order

EOQ = SQRT(2 x 3600 x 1/0.4) = 134 rolls

b)

d = 10 rolls/day, σd = 2 rolls/day, LT = 2 days = 3 days, σ LT = 0

Service level 96%, z(96%) = 1.75

ROP = 10 x 3 + 1.75 x SQRT(3 x 2 x 2 + 10 x 10 x 0 x0)

ROP = 30 + 6.06 = 36 rolls

{ROP = d x LT + zσd√ ¿

(If lead time is fixed, that is no variation in lead time so zero std. dev.)}

c)

Service level = 96%

Risk of stock out = 4% = 0.04

D = 3600 rolls

Unit short per year = 3600 x 0.04 = 144 rolls

No. of cycle = 3600/134 = 26.87 = 27

Unit short per cycle = 144/27 = 5.34 rolls

d)

Service level 96%, E(z) =0.016

σdLT = SQRT(3 x 2 x 2 + 10 x 10 x 0 x0) = 3.46

Q = 134 rolls

Annual service level , SLannual = 1 – 0.016 x 3.46/134 = 0.9996 = 99.96%