# Dev3_sol.xls

Document Sample

```					                                             10.1

Excersise 10-1: Harley Davidson

Harley Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly
plant in Pennsylvania. Engines are transported between the two plants using trucks. Each
truck trip costs \$1,000. The motorcycle plant assembles and sells 300 motorcycles each
day. Each engine costs \$500 and Harley incurs a holding cost of 20 percent per year. How
many engines should Harley load onto each truck? What is the cycle inventory of engines at
Harley?

Input
Demand, R =                                              109,500 (assuming 365 operating days)
Fixed cost per order, S =                    \$             1,000
Cost per engine, C =                         \$               500
Holding cost, h =                                            20%

Output
EOQ =                                                      1,480
# of orders per year                                          74
Annual Order Cost                            \$            73,993
Cycle inventory (units)                                      740
Cycle inventory (value)                                  369,966
Annual Holding Cost                          \$            73,993
Total Inventory Cost                         \$           147,986

Order Size Increment =                                          20

Order                Annual                                   Total
Size                Order Cost           Holding Cost          Cost
300                 \$365,000              \$15,000           \$380,000
320                 \$342,188              \$16,000           \$358,188
340                 \$322,059              \$17,000           \$339,059
360                 \$304,167              \$18,000           \$322,167
380                 \$288,158              \$19,000           \$307,158
400                 \$273,750              \$20,000           \$293,750
420                 \$260,714              \$21,000           \$281,714
440                 \$248,864              \$22,000           \$270,864
460                 \$238,043              \$23,000           \$261,043
480                 \$228,125              \$24,000           \$252,125
500                 \$219,000              \$25,000           \$244,000
520                 \$210,577              \$26,000           \$236,577
540                 \$202,778              \$27,000           \$229,778
560                 \$195,536              \$28,000           \$223,536
580                 \$188,793              \$29,000           \$217,793
600                 \$182,500              \$30,000           \$212,500
620                 \$176,613              \$31,000           \$207,613
640                 \$171,094              \$32,000           \$203,094
660                 \$165,909              \$33,000           \$198,909
680                 \$161,029              \$34,000           \$195,029
700                 \$156,429              \$35,000           \$191,429
720                 \$152,083              \$36,000           \$188,083
740                 \$147,973              \$37,000           \$184,973
760                 \$144,079              \$38,000           \$182,079

Page 1
10.1

780   \$140,385            \$39,000   \$179,385
800   \$136,875            \$40,000   \$176,875
820   \$133,537            \$41,000   \$174,537
840   \$130,357            \$42,000   \$172,357
860   \$127,326            \$43,000   \$170,326
880   \$124,432            \$44,000   \$168,432
900   \$121,667            \$45,000   \$166,667
920   \$119,022            \$46,000   \$165,022
940   \$116,489            \$47,000   \$163,489
960   \$114,063            \$48,000   \$162,063
980   \$111,735            \$49,000   \$160,735
1000   \$109,500            \$50,000   \$159,500
1020   \$107,353            \$51,000   \$158,353
1040   \$105,288            \$52,000   \$157,288
1060   \$103,302            \$53,000   \$156,302
1080   \$101,389            \$54,000   \$155,389
1100    \$99,545            \$55,000   \$154,545
1120    \$97,768            \$56,000   \$153,768
1140    \$96,053            \$57,000   \$153,053
1160    \$94,397            \$58,000   \$152,397
1180    \$92,797            \$59,000   \$151,797
1200    \$91,250            \$60,000   \$151,250
1220    \$89,754            \$61,000   \$150,754
1240    \$88,306            \$62,000   \$150,306
1260    \$86,905            \$63,000   \$149,905
1280    \$85,547            \$64,000   \$149,547
1300    \$84,231            \$65,000   \$149,231
1320    \$82,955            \$66,000   \$148,955
1340    \$81,716            \$67,000   \$148,716
1360    \$80,515            \$68,000   \$148,515
1380    \$79,348            \$69,000   \$148,348
1400    \$78,214            \$70,000   \$148,214
1420    \$77,113            \$71,000   \$148,113
1440    \$76,042            \$72,000   \$148,042
1460    \$75,000            \$73,000   \$148,000
1480    \$73,986            \$74,000   \$147,986
1500    \$73,000            \$75,000   \$148,000
1520    \$72,039            \$76,000   \$148,039
1540    \$71,104            \$77,000   \$148,104
1560    \$70,192            \$78,000   \$148,192
1580    \$69,304            \$79,000   \$148,304
1600    \$68,438            \$80,000   \$148,438
1620    \$67,593            \$81,000   \$148,593
1640    \$66,768            \$82,000   \$148,768
1660    \$65,964            \$83,000   \$148,964
1680    \$65,179            \$84,000   \$149,179
1700    \$64,412            \$85,000   \$149,412
1720    \$63,663            \$86,000   \$149,663
1740    \$62,931            \$87,000   \$149,931
1760    \$62,216            \$88,000   \$150,216
1780    \$61,517            \$89,000   \$150,517
1800    \$60,833            \$90,000   \$150,833

Page 2
10.1

1820   \$60,165            \$91,000   \$151,165
1840   \$59,511            \$92,000   \$151,511
1860   \$58,871            \$93,000   \$151,871
1880   \$58,245            \$94,000   \$152,245
1900   \$57,632            \$95,000   \$152,632
1920   \$57,031            \$96,000   \$153,031
1940   \$56,443            \$97,000   \$153,443
1960   \$55,867            \$98,000   \$153,867
1980   \$55,303            \$99,000   \$154,303

Page 3
10.1

using trucks. Each

cent per year. How
entory of engines at

uming 365 operating days)

Page 4
Excersise 10-2: Harley Davidson

Harley has decided to implement Just In Time (JIT) at the motorcycle assembly plant. As
part of this initiative it has reduced the number of engines loaded on each truck to 100. If
each truck trip still costs \$1,000, how does this decision impact annual costs at Harley?
What should the cost of each truck be if a load of 100 engines is to be optimal for Harley?

Part I

Inputs
Demand, R =                                                  109,500 (assuming 365 operating days)
Fixed cost per order, S =                      \$               1,000
Cost per engine, C =                           \$                 500
Holding cost, h =                                                20%
Order quantity                                                   100

Outputs
# of orders per year                                           1,095
Annual Order Cost                                          1,095,000
Cycle inventory (units)                                           50
Annual Holding Cost                            \$               5,000
Total Inventory Cost                           \$           1,100,000

Part II

Inputs
Demand, R =                                                  109,500 (assuming 365 operating days)
Fixed cost per order, S =                      \$               1,000
Cost per engine, C =                           \$                 500
Holding cost, h =                                                20%
EOQ                                                              100

Outputs
Fixed cost per order, S =                      \$                 4.57

# of orders per year                                           1,095
Annual Order Cost                                              5,000
Cycle inventory (units)                                           50
Annual Holding Cost                            \$               5,000
Total Inventory Cost                           \$              10,000

CR - 4/27/2013 11:12 PM                            Page 5 cd6268fb-fee2-4091-9cfd-b4f4018d26ee.xls - 10.2

Weekly demand for Motorola cell phones at a Best Buy store is normally distributed with a mean of 300
and a standard deviation of 200. Motorola takes two weeks to supply a Best Buy order. Best Buy is
targeting a cycle service level of 95 percent and monitors its inventory continuously. How much safety
inventory of cell phones should Best Buy carry? What should their reorder point be?

Inputs
Average demand per unit time R =                                                                    300
SD of demand per unit time sR =                                                                     200
Target cycle service level                                                                         0.95

Distribution of demand during lead time
Mean demand during lead time R L =                                                                  600
SD of demand during lead time sL =                                                                  283

Output
Safety Inventory ss =                                                                               465
Reorder point R =                                                                                  1065

Reorder Point Increment =                                                                               10

Cycle Service Level & Inventory
Reorder                         Safety                                         Cycle Service
Point ROP                       Inventory ss                                    Level (CSL )
600                                 0                               0.5000
610                                10                               0.5141
620                                20                               0.5282
630                                30                               0.5422
640                                40                               0.5562
650                                50                               0.5702
660                                60                               0.5840
670                                70                               0.5977
680                                80                               0.6114
690                                90                               0.6248
700                                100                              0.6382
710                                110                              0.6513
720                                120                              0.6643
730                                130                              0.6771
740                                140                              0.6897
750                                150                              0.7021
760                                160                              0.7142
770                                170                              0.7261
780                                180                              0.7377
790                                190                              0.7491
800                                200                              0.7602
810                                210                              0.7711
820                                220                              0.7817
830                                230                              0.7919
840                                240                              0.8019
850                                250                              0.8116
860                                260                              0.8210
870                                270                              0.8301
880                                280                              0.8389
890                                290                              0.8474
900                                300                              0.8556
910                                310                              0.8635
920                                320                              0.8711
930                                330                              0.8783
940                                340                              0.8853
950                                350                              0.8920
960                                360                              0.8985
970                                370                              0.9046
980                                380                              0.9104
990                                390                              0.9160
1000                                400                              0.9214
1010                                410                              0.9264
1020                                420                              0.9312
1030                                430                              0.9358
1040                                440                              0.9401
1050                                450                              0.9442
1060                                460                              0.9481
1070                                470                              0.9517
1080                                480                              0.9552
1090                                490                              0.9584
1100                                500                              0.9615
1110                                510                              0.9643
1120                                520                              0.9670
1130                                530                              0.9695
1140                                540                              0.9719
1150                                550                              0.9741
1160                                560                              0.9761
1170                                570                              0.9781
1180                                580                              0.9798
1190                                590                              0.9815
1200                                600                              0.9831
1210                                610                              0.9845
1220                                620                              0.9858
1230                                630                              0.9870
1240                                640                              0.9882
1250                                650                              0.9892
1260                                660                              0.9902

CR - 4/27/2013 11:12 PM                                                                        Page 6        cd6268fb-fee2-4091-9cfd-b4f4018d26ee.xls - 11.1

Reconsider the Best Buy store in problem 1. The store manager has decided to follow a periodic review
policy to manage inventory of cell phones. They plan to order every three weeks. Given a desired cycle
service level of 95 percent, how much safety inventory should the store carry? What should their order
up to level be?….

Inputs
Average demand per unit time R =                                                                  300
SD of demand per unit time sR =                                                                   200
Review Interval T =                                                                                 3
Target cycle service level                                                                       0.95

Distribution of demand during T + L
Mean demand during T+L, (T+L)R =                                                                1500
SD of demand during T+L, sT+L =                                                                  447

Outputs
Safety Inventory ss =                                                                             736
Order up to level OUL =                                                                          2236

CR - 4/27/2013 11:12 PM                                Page 7         cd6268fb-fee2-4091-9cfd-b4f4018d26ee.xls - 11.2

Assume that the Best Buy store has a policy of ordering cell phones from Motorola in lots of 500.
Weekly demand for Motorola cell phones at the store is normally distributed with a mean of 300 and a
standard deviation of 200. Motorola takes two weeks to supply an order. If the store manager is
targeting a fill rate of 99 percent, what safety inventory should they carry? What should their reorder
point be?

Inputs
Average demand per unit time R =                                                      300
SD of demand per unit time sR =                                                       200
Lot size, Q=                                                                          500
Target fill rate                                                                      0.99

Distribution of demand during L
Mean demand during lead time RL =                                                     600
SD of demand during lead time sL =                                                    283

Intermediate Calculations
Required expected shortage per replenishment cycle =                                5.0000

Outputs
Safety Inventory ss =                                                                 485
Reorder Point                                                                        1085
Expected shortage per replenishment cycle ESC =                                     5.0000

CR - 4/27/2013 11:12 PM                           Page 8   cd6268fb-fee2-4091-9cfd-b4f4018d26ee.xls - 11.3
Excersise 11-4: Hewlett Packard

Weekly demand for Hewlett Packard printers at a Sam's Club store is normally distributed with a mean
of 250 and a standard deviation of 150. The store manager continuously monitors inventory and
currently orders a thousand printers each time the inventory drops to 600 printers. Hewlett Packard
currently takes two weeks to fill an order. How much safety inventory does the store carry? What cycle
service level does Sam's Club achieve as a result of this policy? What fill rate does the store achieve?

Inputs
Average demand per unit time R =                                                      250
SD of demand per unit time sR =                                                       150
Order quantity Q=                                                                    1000
Reorder Point                                                                         600

Distribution of demand during replenishment lead time
Mean demand during lead time RL =                                                     500
SD of demand during lead time sL =                                                    212

Outputs
Safety Inventory ss =                                                                 100
Cycle Service Level CSL =                                                             0.68
Expected shortage per replenishment cycle ESC =                                      43.86
Fill Rate fr =                                                                        0.96

CR - 4/27/2013 11:12 PM                                 Page 9           cd6268fb-fee2-4091-9cfd-b4f4018d26ee.xls - 11.4

```
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