Operations and Supply Management Homework Set 2

Chapter 3 Problem 1 A dry cleaner uses exponential smoothing to forecast equipment usage at its main plant. August usage was forecasted to be 88 percent of capacity; actual usage was 89.6 percent of capacity. A smoothing constant of .1 is used. a. Prepare a forecast for September. Forecast for September =88+0.1(89.6-88) =88+0.16 =88.16% b. Assuming actual September usage of 92 percent, prepare a forecast for October usage. Forecast October = 88.16+0.1(92-88.16) =88.16+0.384 =88.54% Problem 2 Freight car loadings over a 12-year period at a busy port are as follows: Week 1 2 3 4 5 6 a. Number 220 245 280 275 300 310 Week 7 8 9 10 11 12 Number 350 360 400 380 420 450 Week 13 14 15 16 17 18 Determine a linear trend line for expected freight car loadings. Number 460 475 500 510 525 541 Ft=a+bt Ft= forecast for period t A=value of Ft at t=0 B= slope of line T= specified number of time periods from t=0 A=(7001)-(19)(171)/18 =3752/18 =208.44 B=(18)(75713)-(171)(7001)/(18)(2109)-(171)2 =165663/8721=19 The value for a is 208.44 and the value for b is 19 Ft=208.44+19t b. Use the trend equation to predict expected loadings for weeks 20 and 21. Ft=a+bt F20=208.44+ (19)(20) =208.44+380 =588.44 for week 20 Ft21=208.44+ 399 607.44 for week for 21 c. C. The manager intends to install new equipment when the volume exceeds 800 loadings per week. Assuming the current trend continues, the loading volume will reach that level in approximately what week? A= maximum level-level at week 18/n 800-541/19 =13.63 weeks= 14 weeks 18 weeks + 14 weeks =32 weeks the loading volume is expected to reach 800 by week 32 Problem 3 After plotting demand for four periods, an emergency room manager has concluded that a trendadjusted exponential smoothing model is appropriate to predict future demand. The initial estimate of trend is based on the net change of 30 for the three periods from 1 to 4, for an average of +10 units. Use α = .5 and β = .4, and TAF of 250 for period 5. Obtain forecasts for periods 6 through 10. Period Actual Period 1 2 3 4 5 period 1 2 3 4 5 6 7 8 9 10 Period 6 = 262.5 Period 7= 274.75 Period 8= 284.88 Period 9= 295.89 Period 10= 305.92 actual 210 224 229 240 255 265 272 285 294 210 224 229 240 255 6 7 8 9 10 Actual 265 272 285 294 TAF 1 St Tt 250 262.5 274.75 284.88 295.89 305.92 252.5 263.75 273.38 284.94 294.94 10 11 11.5 10.95 10.98 Chapter 11 Problem 4 Manager T. C. Downs of Plum Engines, a producer of lawn mowers and leaf blowers, must develop an aggregate plan given the forecast for engine demand shown in the table. The department has a regular output capacity of 130 engines per month. Regular output has a cost of $60 per engine. The beginning inventory is zero engines. Overtime has a cost of $90 per engine. 1 120 2 135 3 140 MONTH 4 5 120 125 6 125 7 140 8 135 Total 1,040 a. Develop a chase plan that matches the forecast and compute the total cost of your plan. Regular production can be less than regular capacity. Month Forecas t Regular production Overtime Inventor y Backlo g 1 120 120 0 0 0 2 135 130 5 0 0 3 140 130 10 0 0 4 120 120 0 0 0 5 125 125 0 0 0 6 125 125 0 0 0 7 140 130 10 0 0 8 135 130 5 0 0 1010 30 0 0 Total Total cost = Regular production cost + Overtime cost+inventory cost+backlog cost = 1010*60+30*90+0*2+0*90 = 63300 b. Compare the costs to a level plan that uses inventory to absorb fluctuations. Inventory carrying cost is $2 per engine per month. Backlog cost is $90 per engine per month. There should not be a backlog in the last month. Month Forecas t Regular production Overtime Inventor y Backlo g 1 120 130 0 10 0 2 135 130 0 5 0 3 140 130 0 0 5 4 120 130 0 5 0 5 125 130 0 10 0 6 125 130 0 15 0 7 140 130 0 5 0 8 135 130 0 0 0 1040 0 50 5 Total Total cost = Regular production cost + Overtime cost+inventory cost+backlog cost = 1040*60+0*90+50*2+5*90 = 62950 Comparing the costs we can see level plan that uses inventory to absorb fluctuations has lowest cost Chapter 12 Problem 5 Eighty units of end item E are needed at the beginning of week 6. Three cases (30 units per case) of J have been ordered and one case is scheduled to arrive in week 3, one in week 4, and one in week 5. Note: J must be ordered by the case, and B must be produced in multiples of 120 units. There are 60 units of B and 20 units of J now on hand. Lead times are two weeks each for E and B, and one week for J. Prepare a material requirements plan for component J. a. (a) W0 W1 W2 W3 W4 W5 Item E Gross requirements 0 0 0 0 0 OH=0 Scheduled receipts 0 0 0 0 0 LT=2 Projected on hand 0 0 0 0 0 Lot size = L4L Net requirements 0 0 0 0 0 Planned order receipts 0 0 0 0 0 Planned order releases 0 0 0 80 0 W1 W2 W3 W4 W5 0 W0 Item B Gross requirements 0 0 0 160 0 OH=60 Scheduled receipts 0 0 0 0 0 LT=2 Projected on hand 60 60 60 20 20 Lot size = Net requirements 0 0 0 100 0 60 120 Planned order receipts 0 0 0 120 0 Planned order releases 0 120 0 0 0 W1 W2 W3 W4 W5 W0 Item J Gross requirements 0 480 0 240 0 OH=20 Scheduled receipts 0 0 30 30 30 LT=1 Projected on hand 20 20 50 20 50 Lot size = 30 Net requirements 0 460 0 160 0 Planned order receipts 0 480 0 180 0 Planned order releases (units) 480 0 180 0 0 Planned order releases (cases) 16 0 6 0 0 20 b. Suppose that in week 4 the quantity of E needed is changed from 80 to 70. The planned-order releases through week 3 have all been executed. How many more Bs and Js will be on hand in week 6? W0 W1 W2 W3 W4 W5 W6 Item E Gross requirements 0 0 0 0 0 80 OH=0 Scheduled receipts 0 0 0 0 0 0 LT=2 Projected on hand 0 0 0 0 0 0 0 Item D OH=25 LT=APT SS=0 Q=FOQ QT=100 available balance Net requirements Planned order receipts Planed order releases Gross requirements Scheduled receipts Project available balance Net requirements Planned order receipts Planed order releases Period Item B Gross OH=10 requirements LT=1 SS=0 Q=LAL Scheduled receipts Project available 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 40 0 0 0 0 100 0 0 0 0 0 0 125 125 85 85 85 85 85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 2 0 3 0 4 50 5 0 6 0 7 0 0 0 0 0 0 0 0 10 10 10 0 0 0 0 Item D OH=85 LT=1 SS=0 Q=FOQ balance Net requirements Planned order receipts Planed order releases Gross requirements Scheduled receipts Project available balance Net requirements Planned order receipts QT=100 Planed order releases 0 0 0 50 0 0 0 0 0 0 50 0 0 0 0 0 0 50 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 85 85 85 85 85 85 85 0 0 0 15 0 0 0 0 0 0 100 0 0 0 0 0 100 0 0 0 0 Item C OH=0 LT=1 SS=0 Q=LAL Item D OH=25 LT=APT SS=0 Q=FOQ QT=100 Period 1 2 3 4 5 6 7 Gross 0 requirements 0 0 30 0 0 0 Scheduled receipts Project available balance Net requirements Planned order receipts Planed order releases Gross requirements 0 0 0 0 0 0 0 10 10 10 10 0 0 0 0 0 0 20 0 0 0 0 0 0 20 0 0 0 0 0 0 20 0 0 0 0 0 0 0 80 0 0 Scheduled receipts Project available balance Net requirements Planned order receipts Planed order releases 0 0 0 0 0 0 0 85 85 85 85 5 5 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 The MRP for D is 100 order release for week 3 Harvey Industries Case Study Harvey Industries, a Wisconsin company, specializes in the assembly of high-pressure washer systems and in the sale of repair parts for these systems. The products range from small portable high-pressure washers to large industrial installations for snow removal from vehicles stored outdoors during the winter months. Typical uses for high-pressure water cleaning include: Industrial customers include General Motors, Ford, Chrysler, Delta Airlines, United Parcel Service, and Shell Oil Company. Although the industrial applications are a significant part of its sales, Harvey Industries is primarily an assembler of equipment for coin operated self-service car wash systems. The typical car wash is of concrete block construction with an equipment room in the center, flanked on either side by a number of bays. The cars are driven into the bays where the owner can wash and wax the car, utilizing high-pressure hot water and liquid wax. A dollar bill changer is available to provide change for the use of the equipment and the purchase of various products from dispensers. The products include towels, tire cleaner, and upholstery cleaner. In recent years Harvey Industries has been in financial difficulty. The company has lost money for three of the last four years, with the last year's loss being $17,174 on sales of $1,238,674. Inventory levels have been steadily increasing to their present levels of $124,324. The company employs 23 people with the management team consisting of the following key employees: president, sales manager, manufacturing manager, controller, and purchasing manager. The abbreviated organization chart reflects the reporting relationship of the key employees and the three individuals who report directly to the manufacturing manager. The current inventory control “system” consists of orders for stock replenishment being made by the stockroom foreman, the purchasing manager, or the manufacturing manager whenever one of them notices that the inventory is low. An order for replenishment of inventory is also placed whenever someone (either a customer or an employee in the assembly area) wants an item and it is not in stock. Some inventory is needed for the assembly of the high-pressure equipment for the car wash and industrial applications. There are current and accurate bills of material for these assemblies. The material needs to support the assembly schedule are generally known well in advance of the build schedule. The majority of inventory transactions are for repair parts and for supplies used by the car washes, such as paper towels, detergent, and wax concentrate. Because of the constant and rugged use of the car wash equipment, there is a steady demand for the various repair parts. The stockroom is well organized, with parts stored in locations according to each vendor. The number of vendors is relatively limited, with each vendor generally supplying many different parts. For example, the repair parts from Allen Bradley, a manufacturer of electrical motors, are stocked in the same location. These repair parts will be used to provide service for the many electrical motors that are part of the high-pressure pump and motor assembly used by all of the car washes. Because of the heavy sales volume of repair parts, there are generally two employees working in the stockroom—a stockroom foreman who reports to the manufacturing manager and an assistant to the foreman. One of these two employees will handle customer orders. Many customers stop by and order the parts and supplies they need. Telephone orders are also received and are shipped by United Parcel Service the same day. The assembly area has some inventory stored on the shop floor. This inventory consists of lowvalue items that are used every day, such as nuts, bolts, screws, and washers. These purchased items do not amount to very much dollar volume throughout the year. Unfortunately, oftentimes the assembly area is out of one of these basic items and this causes a significant amount of downtime for the assembly lines. Paperwork is kept to a minimum. A sales slip listing the part numbers and quantities sold to a customer is generally made out for each sale. If the assembly department needs items that are not stocked on the assembly floor, someone from that department will enter the stockroom and withdraw the necessary material. There is no paperwork made out for the items needed on the assembly floor. There were 973 different part numbers purchased for stock last year and those purchases amounted to $314,673. An analysis of inventory records shows that $220,684 was spent on just 179 of the part numbers. Fortunately for Harvey Industries, most of the items they purchase are stocked by either the manufacturer or by a wholesaler. When it is discovered that the company is out of stock on an item, it generally takes only two or three days to replenish the stock. Due to the company's recent losses, its auditing firm became concerned about the company's ability to continue in business. Recently the company sold off excess vacant land adjoining its manufacturing facility to generate cash to meet its financial obligations. Because of the recent death of the owner, the trust department of a Milwaukee bank (as trustee for the state) has taken over the company's affairs and has appointed a new company president. The new president has identified many problem areas—one of which is improper inventory control. He has retained you as a consultant to make specific recommendations concerning a revised inventory control system. What are your recommendations and their rationale? 1.For the 179 parts that account for approximately 70% of dollars spent last year on stock, what inventory accuracy would APICS recommend? Answer: plus/minus 0.2 2. The assembly area often has downtime due to stockouts of basic items such as nuts, bolts, screws, and washers. What do you recommend? According to ABC analysis these basic items can be classified as C-class, which are having very low % dollar volume but high % consumption. Option a: will increase load on the stockroom personal Option b: reducing the usage will reduce the output rate of final assembly Option c: By analyzing the usage rate of c-class item, apply two-bin system and replenish the bins every morning by stock room assitant. This will also help to monitor the inventory by stock room assistant so has to order a stock when it is reached to desired low level. Correct Option: Have the stockroom assistant fill up the bins in the assembly area each morning 3. Replenishments are currently made when someone notices parts are "low"; what should "low" be? The lead time to fulfill order by the vendors is estimated to be 2-3 days, thus the minimum inventory after placing order should satisfy the demand during lead time to 2-3 days. Thus, minimum inventory held should ensure desired order cycle service level. Correct Option: Low should be enough stock to maintain the desired order cycle service level 4. How would you recommend reducing shortages? As recently the demand of repair parts and supplies has been increased, use two-bin system for this inventory. If the inventory of first bin is reduced to minimum or zero level, then place order for replenishment. Till order receives inventory form second bin will be utilized. This will reduce the stockouts and improve the monitoring system. For the inventory required for assembly order the quantity that is required according to build schedule. Correct Option: Use a two-bin system for repair parts and supplies, plus order material required by the build schedule Stiven Aodesho 5. What is one possible explanation for the steadily increasing inventory levels? The majority of inventory transactions are for repair parts and for supplies used by the car washes, such as paper towels, detergent, and wax concentrate. Because of the constant and rugged use of the car wash equipment, there is a steady demand for the various repair parts. Correct option: Sales of repair parts and supplies have unexpectedly increased this past year. 6. What level of safety stock should the company target for repair parts? Repair parts are major parts of the car washing machine, if not available with customer may delay or shut-down there operation. Thus, it is important to keep safety stock level that requires satisfying customer service level. Correct Option: As high of a level as required to satisfy customer service contracts 7 Office supplies come from one supplier with deliveries once per week. Which type of inventory model should be used to help decide how much to order? As all the supplies are ordered from single supplier and the delivery is once a week, it appropriate to apply fixed-order-interval inventory model. This will reduce the shipping cost by repeating order from same supplier. Also the inventory is monitored once a week which reduce human efforts for managing inventory. Correct Option: Fixed-Order-Interval Model Chapter 13 Problem 7 A produce distributor uses 800 packing crates a month, which it purchases at a cost of $10 each. The manager has assigned an annual carrying cost of 35 percent of the purchase price per crate. Ordering costs are $28. Currently the manager orders once a month. How much could the firm save annually in ordering and carrying costs by using the EOQ? Monthly demand=800 crates Annual demand (D)= 800*12 months =9600 crates Stiven Aodesho Ordering cost (S)=$28 Holding cost (H)= 35% of price =35% of $10=$3.5 Economic order quantity (Q*)= sqrt of (2DS/H) Sqrt of (2* 9600 *28)/3.5 =sqrt of 153600 391.92 =392 crates Total cost with EOQ = ordering cost + Holding cost =(D/Q*) * S+ (Q*/2)*H =(9600/392)*28+ (392/2)*3.5 =$685.71+$686 =$1371.71 Total cost with Q= 800= ordering cost + holding cost =(9600/800)*28+ (800/2)*3.5 $ 336+1400= $1736 Annual savings= Total cost without EOQ-total cost with EOQ $1736-$1371.71 =$364.29 Problem 8 A mail-order house uses 18,000 boxes a year. Carrying costs are 60 cents per box a year, and ordering costs are $96. The following price schedule applies. Determine: a. The optimal order quantity. Demand (D) =18,000 Carrying cost (H)=$0.6 Ordering cost ©=$96 Eoq= sqrt(2*D*S/H) EOQ= 2*18,000*96/0.6 =2400 The EOQ falls in the range of 2,000 to 4,999 units and calculating the total cost of ordering using EOQ at the upper price is 5,000 and 10,000. Total cost2400 (TC)= 18,000/2400*96+2400/2*0.6+1.2*18000=$23,040 TC5000==18000/5000*96+5000/2*0.6+1.15*18000=$22,545.6 Stiven Aodesho TC10000=18000/10000*96+10000/2*0.6+1.10*18000=$22,972.8 B. The number of orders per year. Number of orders per year=demand/optimal order quantity =18000/5000 =3.6 orders per year Problem 9 Skinner's Fish Market buys fresh Boston bluefish daily for $4.20 per pound and sells it for $5.70 per pound. At the end of each business day, any remaining bluefish is sold to a producer of cat food for $2.40 per pound. Daily demand can be approximated by a normal distribution with a mean of 80 pounds and a standard deviation of 10 pounds. What is the optimal stocking level? Cost price=$4.20 Selling price=$5.70 Salvage value= $2.40 Profit Cp= 5.70-4.20=$1.50 Loss cu=4.2-2.4= $1.80 Q= Cp/((Cp+Cu) Q=1.5/(1.5+1.8)=0.45 Mean =80 pounds Standard deviation= 10 pounds Optimal stocking level= 78.74 pounds