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LOGISTICS ENGINEERING & SUPPLY CHAIN DESIGN

HOMEWORK 2
Question 1:
Consider an oil manufacturing factory that works seven days per week, 2 shifts per day, 4
hours per shift.
The refinery procedure with 3 steps are separation, conversion, treating, automatically, and
this station can refine 300,000 litres per shift.
Then, the bottling station may fills standard bottles of 400ml, 1 litre, 2 litres and 5 litres, but
for production plan of Tet holiday giftset, refined oil will be pumped into 1-litre bottles,
automatically. Hence, the daily capacity of this station is 350,000 1-litre bottles per shift.
These oil bottles need packing into a box of 2 oil bottles with a New Year’s greeting card.
Here, the packing station can form up to 200,000 boxes per 4-hour. Especially, the packing
area works a 5-day week as hiring weekend labours may cost more.
Finally, these giftset boxes are put into pallets of 360 boxes and shipped to wholesellers or
retailers by a contractor whose 8 lorries can each carry 28 pallets, and make up to 4 trips a
day for 7 days a week.
a. What is the weekly capacity (bottles/of every part of this production line (Refinery,
Bottling, Packing, Shipping)?
b. Which step is currently the bottleneck of this production process? What is your
suggestion to increases the company general capacity?
c. If the company considers an investment in machinery, where should they invest in and
why?
o Answer:
1 litres/ bottle
Refinery= 300000*2*7=4200000 bottles/week
Bottling= 350000*2*7=4900000 bottles/week
Packing= 200000*2*2*5=4000000 bottles/week
Shipping= 360*2*28*8*4*7=4515840 bottles/week
The bottleneack of this process is packing step that has the capacity lowest in whole
process is 4000000 bottles/week. The company should expand the capacity of Packing
process.
The company can invest more machine in packing process to increasing its capacity
instead of hire more workers which cost more in the weekend.

Question 2:
Consider an oil manufacturing company who has a contract to deliver 10,000 Tet holiday
giftsets to a supermarket within a week. This giftset included 2 oil bottles and 1 Tet holiday’s
greeting card, so currently, this step requires the most human-workforce within the
production line.
The company has a contractor hiring workers for their packing station to manually finish this
order, which takes the worker 10 minutes to pack a box, with an average of the worker’s
efficiency is 80%.
Currently, the workers in packing station work a single eight-hour shift, five days a week, but
could move to double shifts or have overtime at weekends.

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a. What is the designed capacity and effective capacity of each worker in terms of
number of giftsets per week, without overtime or double shifts?
b. How many full-time workers should the company employ, without overtime or
double shifts?
c. How many hours of overtime per worker should be added if the company hire 50
workers? (Hint: Calculate the total capacity of 50 workers in terms of giftsets per
week)
o Answer:
Designed capacity each worker per week= (8*5*60)/10=240 giftsets
Effective capacity each worker per week=(8*5*60*80%)/10=192 giftsets
Full-time worker without overtime or double shift is = 10000/192=52.08=53
workers
Hours overtime per worker=(((10000*10)-((8*5*60*80%)*50))/80%)/50=100
minutes=1.67hrs

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Question 3:
An automobile brake supplier operates on two 8-hour shifts, 5 days per week, 52 weeks per
year. The table below shows time standards, lot sizes, and demand forecasts for three
components. Because of demand uncertainties, the operations manager obtained three
demand forecasts (pessimistic, expected and optimistic). The manager believes that a 20%
capacity cushion is best.
a. What is the minimum number of machines needed?
b. If the operation currently has two machines, what is the capacity gap?

  Processing, p Setup, s Lot size, Q Demand Forecast, D

(units/hour) (hours/lot) (units/lot) (units)
Component A 0.05 1 60 18,000
Component B 0.2 4.5 80 13,000
Component C 0.05 8.2 120 25,000

o Answer:
The minimum number of machines this operater need is

[
18000 ×0.05+
18000
60 ][
×1 + 13000 ×0.2+
13000
80 ][
× 4.5 + 25000 × 0.05+
25000
120
×8.2
]
(
(2 × 8× 5× 52)× 1−
20 %
100 % )
=2.25=3 machines
The efficience capacity of 2 machines is = 2*2*8*5*52*(1-0.2)=6656 hrs
The total demand in one year is =

[18000× 0.05+
18000
60 ][
×1 + 13000× 0.2+
13000
80 ][
× 4.5 + 25000 × 0.05+
25000
120 ]
×8.2 =7489.5

8
The capacity gap is = 7489.58-6656=833.58
Question 4:
Roche Brothers is considering a capacity expansion of its supermarket. The landowner will
build the addition to suit in return for $200,000 upon completion and a 5-year lease.
The increase in rent for the addition is $10,000 per month. The annual sales projected through
year 5 follow. The current effective capacity is equivalent to 500,000 customers per
year. Assume a 2 percent pretax profit on sales.
a. If Roche expands its capacity to serve 700,000 customers per year now (end of year
0), what are the projected annual incremental pretax cash flows attributable to this
expansion?
b. If Roche expands its capacity to serve 700,000 customers per year at the end of year
2, the landowner will build the same addition for $240,000 and a 3-year lease at
$12,000 per month. What are the projected annual incremental pretax cash flows
attributable to this expansion alternative?

Year 1 2 3 4 5
Customers 560,000 600,000 685,000 700,000 715,000

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Average Sales per Customer $ 50.00 $ 53.00 $ 56.00 $ 60.00 $ 64.00

o Answer:
Year 1 2 3 4 5
Customer 560000 600000 685000 700000 715000
exceed customer 60000 100000 185000 200000 200000
Average sale per customer 50 53 56 60 64
Profit 60000 106000 207200 240000 256000
expand/ rent cost 120000 120000 120000 120000 120000
cash flow -60000 -14000 87200 120000 136000

Year 1 2 3 4 5
Customer 560000 600000 685000 700000 715000
exceed customer 60000 100000 185000 200000 215000
Average sale per customer 50 53 56 60 64
Profit 60000 106000 207200 240000 275200
expand/ rent cost 120000 120000 144000 144000 144000
cash flow -60000 -14000 63200 96000 131200

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