CHAUTAUQUA IRON WORKS

You are managing the inbound supply and inventory for some key
materials for Chautauqua Iron Works located in Western New York
State. Specifically, you have been asked to develop an inventory policy
for a special plastic admixture that is delivered in bulk transportation. It
is a Class B item. The relevant data is here:

Unit Cost, c, = 3.34 $/lbs (recall, lbs is the abbreviation for pounds)

Ordering cost, ct, = 1000 $/order to include all transportation costs

Annual Demand, D, = 400,000 lbs/year

Forecast accuracy = 36,000 lbs/year (this is a RMSE)

Holding charge, h , = 0.15 $/$/year

Level of Service - CSL=0.95

Leadtime = 1 month

Inventory policy (s,Q)

I recommend that you use a spreadsheet for this problem - it will save
time in the long run.

1A
(1/1 point)
What is your EOQ? Show your answers in lbs and round it to the nearest
1000 lbs increment. Use the value provided in the explanation going
forward as needed even if you entered a different value and got it correct!
The same applies for all following questions

1B
(1/1 point)
How many replenishment cycles do you expect per year? Enter an integer
value.

1C

(2 points possible)
What is your re-order point, s, for this item for an (s,Q) replenishment
policy? Round your answer to the nearest 100 lbs increment.

PART 2
Now let's find the annual costs of this inventory policy.

2A
(1/1 point)
Using the (s,Q) policy found in part 1, what is the expected annual
ordering costs?

2B
(1/1 point)
Using the (s,Q) policy found in part 1, what is the expected annual cycle
stock cost? Round your answer to the nearest dollar value.

2C
(1/1 point)
Using the (s,Q) policy found in part 1, what is the expected annual safety
stock cost? Round your answer to the nearest dollar value.

2D
(1/1 point)
Using the (s,Q) policy found in part 1, what is the expected annual
pipeline inventory cost? Round your answer to the nearest dollar value.

2E
(1/1 point)
What is the total (Ordering and Inventory) expected annual cost for the
(s,Q) policy found in part 1? Round your answer to the nearest dollar
value.

PART 3.
A new transportation carrier has come to offer you faster transportation
services. He can reduce the lead time of an order from 1 month to half of
a month (L = 0.5 months). You now want to figure out that the impact of
this potential new lead time on your total costs.

3A
(1/1 point)
What is your new EOQ? Show your answers in lbs and round it to the
nearest 1000 lbs increment.

3B
(2/2 points)
What is your new re-order point, s, for this item for an (s,Q)
replenishment policy? Round your answer to the nearest 100 lbs
increment.

3C
(1/1 point)
Using the (s,Q) policy found in part 3, what is the expected annual
ordering costs?

3D
(1/1 point)
Using the (s,Q) policy found in part 3, what is the expected annual cycle
stock cost? Round your answer to the nearest dollar value.

3E
(1/1 point)
Using the (s,Q) policy found in part 3, what is the expected annual safety
stock cost? Round your answer to the nearest dollar value.

3F
(1/1 point)
Using the (s,Q) policy found in part 3, what is the expected annual
pipeline inventory cost? Round your answer to the nearest dollar value.

3G
(1/1 point)
What is the total (Ordering and Inventory) expected annual cost for the
(s,Q) policy found in part 3? Round your answer to the nearest dollar
value.

3H
Based on your analysis, what course of actions do you recommend? You
can pick more than one.
Decline the new carrier's offer without any more analysis and stay with your current
carrier
Consider the new carrier, but only if the order cost stays the same ($1000 per order)
Consider the new carrier, and perhaps consider paying more in ordering/transportation
costs
Consider talking to your existing carrier to see how they could reduce their transit time.

PART 4
You could not come to terms with the new carrier (they wanted to double
the rates!). So, your lead time is still 1 month.
But, your forecasting team has come to you with a proposal to use a new
Cloud-Based, Machine Learning forecasting technique that will reduce the
forecast error by half. That is, they claim that this new system will
reduce the annual RMSE of the forecast from 36,000 lbs to 18,000 lbs.

You have your doubts about the forecasting system's capabilities, but you
want to see what the impact would be. Suppose that the system actually
did reduce the Annual RMSE of the forecast to 18,000 lbs. Find the
expected annual costs.

4A
(1/1 point)
What is your new EOQ? Show your answers in lbs and round it to the
nearest 1000 lbs increment.

4B
(2/2 points)
What is your new re-order point, s, for this item for an (s,Q)
replenishment policy? Round your answer to the nearest 100 lbs
increment.

4C
(1/1 point)
Using the (s,Q) policy found in part 4, what is the expected annual order
costs?

4D
(1/1 point)
Using the (s,Q) policy found in part 4, what is the expected annual cycle
stock cost? Round your answer to the nearest dollar value.

4E
(1/1 point)
Using the (s,Q) policy found in part 4, what is the expected annual safety
stock cost? Round your answer to the nearest dollar value.

4F

(1/1 point)
Using the (s,Q) policy found in part 4, what is the expected annual
pipeline inventory cost? Round your answer to the nearest dollar value.

4G
(1/1 point)
What is the total (Ordering and Inventory) expected annual cost for the
(s,Q) policy found in part 4? Round your answer to the nearest dollar
value.

4H
Based on your analysis, what course of action do you recommend?
Authorize the new forecasting tool since it saved money Authorize the new forecasting
tool since it saved money
Fire the entire forecasting team
Try to understand what the tool does and what the benefit might be to other products

5
(1/1 point)
This solution will not be made available until after the exam due date!
You are interested in understanding the relative benefits of reducing lead
time and improving forecast error. Using the data from part 1, what
would your lead time need to be in order to match the savings provided
by the new forecasting system where annual RMSE is cut in half? Enter
your answer in months rounding to two decimal places.