1. ISE 216 Question Hour Chapter 5
Mar. 30th 2011

2. Q 5.10
Happy Henry’s car dealer sells an imported car called the EX123. once every three months, a shipment of the cars is made to Happy Henry’s. Emergency shipments can be made between these three-month intervals to resupply the cars when inventory falls short of demand. The emergency shipments require two weeks, and buyers are willing to wait this long for the cars, but will generally go elsewhere before the next three month shipment is due. From experience, it appears that the demand for EX123 over a three-month interval is normally distributed with mean of 60 and a variance of 36. the cost of holding an EX123 for one year is $500. emergency shipments cost $250 per car over and above normal shipping cost.
How many cars should they be purchasing every three months?
Repeat the calculations, assuming that excess demand are back ordered form one three-month period to the next. Assume a loss-of-goodwill cost of $100 for customers having to wait until the next three-month period and acost of $50 per customer for bookkeeping expenses.
Repeat the calculations, assuming that H. H. İs out of stock. The customer will purchase the car elsewhere. In this case assume that the car cost H. H. an average of $10000 and sell for an average of $ ıgnore loss-of-goodwill costs.

3. A 5.10

4. Q 5.13
An automotive warehouse stocks a variety of parts that are sold at the neighborhood stores. One particular part, a popular brand of ail filter, is purchased by the warehouse for $1.5 each. It is estimated that the cost of order processing and receipt is $100 per order. The company uses an inventory carrying charge based on a 28 percent annual interest rate. The mothly demand for the filter folows a normal distribution with mean 280 and a standart deviation 77. order lead time is assumed to be five months. Assume that a filter is demanded when the warehouse is out of stock, then the demand is back ordered, and the cost assesed for each back ordered demand is $ Determine the following quantities:
The optimal values of the order quantity and the reorder level.
The average annual cost of holding, set up, and stock out associated with this itemassuming that an optimal policy is used.
Evaluate the cost of uncertainty for this process. That is, compare the average annual cost you obtained in part b with the average annual cost that would be incurred if the lead time demand had zero variance.

5. A 5.13

6. A 5.13

7. Q 5.14
Weiss’s Paint Store uses a (Q,R) inventory system to control its stock levels. For a particularly popular light latex paint, historical data show that the distribution o monthly demand is approximately normal, with mean 28 and standard deviation 8. replenishment lead time for this paint is about 14 weeks. Each can of paint costs the store $6. although excess demands are back-ordered, the store owner estimates that unfilled demands cost about $10 each in bookkeeping and loss-of-goodwill costs. Fixed costs of replenishment are $15 per order, and holding costs are based on a $30 percent annual rate of interest.
What are the optimal lot sizes and reorder point for this bramd of paint?
What is the optimal safety stock for this paint?

8. A 5.14

9. Q 5.15
After taking a production seminar, the owner of Weiss’s Paint Store mentioned in Problem 14, decides that his stock out cost of $10 may not be very accurate and switches to a service level model. He decides to set his lot size by the EOQ formula and determines his reorder point so that there is no stock-out in 90 percent of the order cycles.
Find the resulting (Q,R) values.
Suppose that unfortunately, he really wanted to satisfy 90 percent of his demands (that is, achieve a 90 percent fill rate). What fill rate did he actually achieve from the policy determined in part (a)?

10. A 5.15