POM104C

2016

Exercise #2

Dr. SySiongKiao

1.
Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central
inventory operation. Thomass fastest-moving inventory item has a demand of 5,000 units per year. The cost of each
unit is $75, and the inventory carrying cost is $10 per unit per year. The average ordering cost is $31 per order. It
takes about 5 days for an order to arrive. The company maintains a safety stock good for 2 days. There are 250
working days per year.
a)
b)
c)
d)
e)
f)
g)
h)

What is the EOQ? (round off)

What is the safety stock?
What is average inventory excluding the safety stock if EOQ is used?
What is the optimal number of orders per year?
What is the optimal number of days in between any two orders?
What is the annual cost of ordering and holding inventory?
What is the total annual inventory cost, including cost of the 5,000 units?
What is the reorder point?

2.
Race Uno Motors is an Indonesian car manufacturer. At its largest facilities, in Jakarta, the company produces
subcomponents at a rate of 320 per day, and it uses these subcomponents at a rate of 10,000 per year (of 250
working days). Holding costs are $5 per item per year, and ordering costs are $30 per order.
a)
b)
c)
d)
e)
f)
g)

What is the economic production quantity?

How many production runs per year will be made?
What will be the maximum inventory level?
What is the production time in a run?
What percentage of time that the facility will be producing the subcomponents?
What is the percentage idle time of the facility?
What is the annual cost of ordering and holding inventory?

(discussed in class)

3.
Bell Computers purchases integrated circuit chips at $350 per chip. The holding cost is $35 per unit per year, the
ordering cost is $120 per order, and sales are steady at 400 per month. The companys supplier Blue Chip
Manufacturing, Inc., decides to offer price concessions in order to attract larger orders. The price structure is shown
below.
Quantity
1 to 99
100 to 199
200 and up

Price
$350
$325
$300

What is the optimal order quantity and the minimum annual cost for Bell computers to order, purchase, and hold
these integrated chips??

4.
The Orange Top Cab Company has a taxi waiting at each of four cabstands in Evanston, Illinois. Four customers have
called and requested service. The distances, in miles, from the waiting taxis to customers are given in the following
table. Find the optimal assignment of taxis to customers so as to minimize total driving distance to the customers.

Cab Site
Stand 1
Stand 2
Stand 3
Stand 4

A
7
5
6
8

Customer
B
C
3
4
4
6
7
9
6
7

D
8
5
6
4

5.
The following jobs are waiting to be processed at the same machine center. Jobs are logged as they arrive:
Job
A
B
C
D
E

Due Date
313
312
325
314
314

Duration (days)
8
16
40
5
3

In what sequence would the jobs be ranked according to the following decision rules: (a) FCFS, (b) EDD, (c) SPT, and
(d) LPT? All dates are specified as manufacturing planning calendar days. Assume that all jobs arrive on day 275.
Which decision is best and why?