Dry ice inc is a manufacturer of air conditioners

Weichih Sun 3/14/17 TIM 125

Homework 7

Problems

Estimated Time

Actual Time

Problem 1

1 Hour

1 Hour

Problem 2

1 Hour

1 Hour

Problem 3

2 Hours

1.5 Hours

Problem 4

3 Hours

2.5 Hours

Problem 5

2 Hours

1.5 Hours

Problem 6

3 Hours

3 Hours

Problem 7

4 Hours

3.5 Hours

Qualitative Problems

1. Transportation

Step 1: Define the Problem

1. Consider two products with the same margin carried by a retail store. Any leftover units of one product are worthless. Leftover units of the other product can be sold to outlet stores. Which product should have a higher level of availability? Why? 2. What transportation challenges does online grocer Peapod face? Compare transportation costs at online grocers and supermarket chains.

Step 2: Create a Plan

1. Determine which product should have a higher level of availability 2. Research and describe the challenges online grocer Peapod faces

Step 3: Execute the Plan

1. Determine which product should have a higher level of availability The leftover units of a product which become worthless at the end of the selling season should have a higher level of product availability than the leftover units of the other product that can be sold to outlet stores because unsold items for this product are useless and no salvage value. Maintaining higher level of availability for this product will help a firm match demand uncertainty and maximizes profits.

2. Research and describe the challenges online grocer Peapod faces Peapod is responsible for congestion in the releasing area and has to bear a high-priced outbound transportation costs. These kinds of facilities were not available with traditional grocers. Peapod delivers its items in trucks that are climate controlled. These kinds of trucks should be offered with the incentive facilities for peak and off-peak seasons for the goods to be delivered at the right time to the customers. Customers are aware of the transportation constituent of their purchase and Peapod can encourage customers to purchase products of a higher amount. Peapod and traditional grocers need to pay inbound transportation charges for their merchandise. There does not seem to be a large margin in this unless a trader has a market share to gain cost benefits.

Step 4: Check your Work

Using the book as reference and reading over the chapters. I can be sure my assumptions made for this answer are correct with minimal amounts of error.

2. Facilities/Network Design

Step 1: Define the Problem

1. How do the location and size of warehouses affect the performance of a firm such as Amazon.com? What factors should Amazon.com take into account when making this decision? 2. Amazon.com has built new warehouses as it has grown. How does this change affect various cost and response times in the Amazon.com supply chain? 3. Consider a firm such as Dell, with very few production facilities worldwide. List the pros and cons of this approach and why it may or may not be suitable for the computer industry.

Step 2: Create a Plan

1. How do location and size of warehouses affect Amazon.com performance and what factors should be taken into account when making these decisions? 2. How does new warehouses affect Amazon.com response time and costs? 3. What are the pros and cons of having very few production facilities worldwide?

Step 3: Execute the Plan

1. How do location and size of warehouses affect Amazon.com performance and what factors should be taken into account when making these decisions? Responsiveness and efficiency of any company depends upon its size and location of warehouses. It was a time when Amazon used to run its bookstore with only one warehouse, which was established in Seattle. This warehouse was not capable of meeting the demands of customers as they were ineffective in delivering the products at given time. Due to single warehouse, its cost increases with less responsiveness of customers. Since the time, they supplemented warehouses in different locations for distribution purpose, their demand increased at faster rate. This spreading of warehouses helped the customers to get products on time due to proximity of warehouses, where shipment can be done from locations nearer to the customer. Amazon should work on areas underserved, which can prove to be profitable, responsive and efficient from the company’s point of view.

2. How does new warehouses affect Amazon.com response time and costs? With the change in figure of locations, facilities and capacities, there is a change in logistic and facility cost. Amazon’s cost increases with increase in the warehouses at different locations. This cost includes inventory, facility and logistics cost. This result in higher fixed cost that can be utilized for diminishing transportation cost. Fixed cost can be reduced by scattering the warehouses at different locations for distribution purpose, which helps in adding the responsiveness at same expenditure or same responsiveness at less cost. Inventory cost can be reduced by distributing the warehouses at different locations. Inventory costs also changes with an increased number of warehouses.

3. What are the pros and cons of having very few production facilities worldwide? The greatest benefit the Dell has is that it can be located in a large number of countries, which will help in reducing facility cost by removing tariffs and lessening risk of demand and exchange rate. The biggest drawback with Dell is its lack of responsiveness from customers. Customers wait for their order, because they know that it will take enough time to proceed. Orders are further delated when shipped from other production facilities. Orders are further delayed when shipped form other production facilities that are listed on the web site. Cost of shipping may be an area of concern for customers, but they worth provided by Dell is quite high that this shipping cost seems negligible.

Step 4: Check your Work

Using the book as a reference and the information we learned from lectures. I can say that the answers I have put for these discussion questions are correct.

Quantitative Problems

3. Chapter 11: Exercise 11.5

Step 1: Define the Problem

1. Return to the Sam’s Club store in Exercise 4. Assume that the supply lead time from HP is normally distributed, with a mean of 2 weeks and a standard deviation of 1.5 weeks. How much safety inventory should Sam’s Club carry if it wants to provide a CSL of 95 percent? How does the required safety inventory change as the standard deviation of lead time is reduced from 1.5 weeks to zero in intervals of 0.5 weeks?

Step 2: Create a Plan

1. Determine how much safety inventory should Sam’s Club carry if it wants to provide a CSL of 95 percent. How does the required safety inventory change as standard deviation of lead time is reduced from 1.5 to zero in intervals of 0.5 per week

Step 3: Execute the plan

Given information Average demand per period, D = 250 Standard deviation of demand per period, σD = 150 Lead time, L = 2 weeks Reorder point, ROP = 600 Lot size, Q = 1,000 Cycle service level, CSL = 0.95 Standard deviation of lead time, sL = 1.5 weeks

1. Determine how much safety inventory should Sam’s Club carry if it wants to provide a CSL of 95 percent. How does the required safety inventory change as standard deviation of lead time is reduced from 1.5 to zero in intervals of 0.5 per week Standard deviation of lead time 1.5 weeks Expected demand during L periods, DL = L x D = 2 x 250 = 500 Standard deviation of demand during lead time = σL = = = = 430.842 Safety inventory, ss = = 1.65 x 431 = 708.672 Safety inventory of 709 HP printers should be carried by Sam’s Club Standard deviation of lead time 1 week σL = = = = 327.871 Safety inventory, ss = = 1.65 x 328 = 539.300 Safety inventory of 539 HP printers should be carried by Sam’s Club Standard deviation of lead time 0.5 week Standard deviation of demand during lead time = σL = = = = 246.221 Safety inventory, ss = = 1.65 x 246 = 404.997 Safety inventory of 405 HP printers should be carried by Sam’s Club Standard deviation of lead time 0 week Standard deviation of demand during lead time = σL = = = = 212.123 Safety inventory, ss = = 1.65 x 212 = 348.708 Safety inventory of 349 HP printers should be carried by Sam’s Club

Step 4: Check your Work

Using the book as reference for formulas as well as using lecture notes. I believe that the numbers I have calculated for the safety inventory is correct

4. Safety Inventory (Aggregation)

Step 1: Define the Problem

1. Epson produces printers in its Taiwan factory for sale in Europe. Printers sold in different countries differ in terms of the power outlet as well as the language of the manuals. Currently, Epson assembles and packs printers for sale in individual countries. This distribution of weekly demand in different countries is normally distributed, with means and stand deviations as shown in Table 11-6. Assume demand in different countries to be independent. Given that the lead time from the Taiwan factory is eight weeks, how much safety inventory does Epson require in Europe if it targets a CSL of 95 percent? Epson decides to build a central DC in Europe. It will ship base printers (without power supply) to the DC. When an order is received, the DC will assemble power supplies, add manuals, and ship the printers to the appropriate country. The base printers are still to be manufactured in Taiwan with a lead time of eight weeks. How much saving of safety inventory can Epson expect as a result? 2. Return to the Epson data in Exercise 7. Each printer costs Epson $200, and the holding cost is 25 percent. What saving in holding cost can Epson expect as a result of building the European DC? If final assembly in the European DC adds $5 to the production cost of each printer, would you recommend the move? Suppose that Epson is able to cut the production and delivery lead time from its Taiwan factory to four weeks using good information systems. How much savings in holding cost can Epson expect without the European DC? How much savings in holding cost can the firm expect with the European DC?

Step 2: Create a Plan

1. Assume demand in different countries to be independent. Given that the lead time from the Taiwan factory is eight weeks, how much safety inventory does Epson require in Europe if it targets a CSL of 95 percent? Epson decides to build a central DC in Europe. It will ship base printers (without power supply) to the DC. When an order is received, the DC will assemble power supplies, add manuals, and ship the printers to the appropriate country. The base printers are still to be manufactured in Taiwan with a lead time of eight weeks. How much saving of safety inventory can Epson expect as a result? 2. What saving in holding cost can Epson expect as a result of building the European DC? If final assembly in the European DC adds $5 to the production cost of each printer, would you recommend the move? Suppose that Epson is able to cut the production and delivery lead time from its Taiwan factory to four weeks using good information systems. How much savings in holding cost can Epson expect without the European DC? How much savings in holding cost can the firm expect with the European DC?

Step 3: Execute the Plan

1. Assume demand in different countries to be independent. Given that the lead time from the Taiwan factory is eight weeks, how much safety inventory does Epson require in Europe if it targets a CSL of 95 percent? Demand during lead time, DL = D x L Standard deviation of demand during lead time, σL = k = number of countries Safety inventory, ss =

Weekly Demand for Epson Printers in Europe

Country

Mean Demand

Standard Deviation

Lead time

Demand during lead time, DL

Std of demand during lead time, σL

Safety inventory, ss

France

3,000

2,000

8

24,000

5,656.85

9,304.70

Germany

4,000

2,200

8

32,000

6,222.54

10,235.17

Spain

2,000

1,400

8

16,000

3,959.80

6,513.29

Italy

2,500

1,600

8

20,000

4,525.48

7,443.76

Portugal

1,000

800

8

8,000

2,262.74

3,721.88

UK

4,000

2,400

8

32,000

6,788.23

11,165.64

48,384

The amount of safety inventory that Epson requires in Europe with a CSL of 95 percent is 48,384 units

Epson decides to build a central DC in Europe. It will ship base printers (without power supply) to the DC. When an order is received, the DC will assemble power supplies, add manuals, and ship the printers to the appropriate country. The base printers are still to be manufactured in Taiwan with a lead time of eight weeks. How much saving of safety inventory can Epson expect as a result? First we would have to calculate the variance of standard deviation by square rooting each country standard deviation of demand. Then taking the sum of each countries variance and finding the average. Then we calculate the standard deviation of average demand, . Then we can calculate the value of central demand, . Finally, we can calculate the safety inventory, ss =

Weekly demand for Epson printers in Europe

Country

Mean Demand

Standard deviation of demand

Variance

Average of demand

Standard deviation of average demand,

Value of central demand,

Safety inventory, ss

France

3,000

2,000

4,000,000

329,333.33

1,814.75

4,445

20,861

Germany

4,000

2,200

4,840,000

Spain

2,000

1,400

1,960,000

Italy

2,500

1,600

2,560,000

Portugal

1,000

800

640,000

UK

4,000

2,400

5,760,000

If Epson decides to build a central DC in Europe the company needs to maintain a safety inventory of 20,861 units.

2. What saving in holding cost can Epson expect as a result of building the European DC? We know that the safety inventory with decentralized distribution is 48,384 units and safety inventory with centralization is 20,861 units. Savings = (SSwithoutDC + SSwithDC) x unit cost x holding rate Savings = (48,384 – 20,681) x 200 x 0.25 = $1,385,150 savings with a distribution center If final assembly in the European DC adds $5 to the production cost of each printer, would you recommend the move? Increase in total cost = weekly demand x 52 weeks x increased amount Increase in total cost = 16,500 x 52 x 5 = $4,290,000 Since the increase in cost is more than the savings it is not recommend to move

Suppose that Epson is able to cut the production and delivery lead time from its Taiwan factory to four weeks using good information systems. How much savings in holding cost can Epson expect without the European DC? How much savings in holding cost can the firm expect with the European DC?

Weekly Demand for Epson Printers in Europe

Country

Mean Demand

Standard Deviation

Lead time

Demand during lead time, DL

Std of demand during lead time, σL

Safety inventory, ss

France

3,000

2,000

4

12,000

4,000

6,600

Germany

4,000

2,200

4

16,000

4,400

7,260

Spain

2,000

1,400

4

8,000

2,800

4,620

Italy

2,500

1,600

4

10,000

3,200

5,280

Portugal

1,000

800

4

4,000

1,600

2,640

UK

4,000

2,400

4

16,000

4,800

7,920

Total

34,320

Savings = (SS8week – SS4week) x unit cost x holding rate Savings = (48,384 – 34,320) x 200 x 0.25 = $2,419,200 savings with reduced lead time with a distribution center

Weekly demand for Epson printers in Europe

Country

Mean Demand

Standard deviation of demand

Variance

Average of demand

Standard deviation of average demand,

Value of central demand,

Safety inventory, ss

France

3,000

2,000

4,000,000

329,333.33

1,814.75

4,445

14,669

Germany

4,000

2,200

4,840,000

Spain

2,000

1,400

1,960,000

Italy

2,500

1,600

2,560,000

Portugal

1,000

800

640,000

UK

4,000

2,400

5,760,000

Savings = (SS8weeks – SS4weeks) x unit cost x holding rate Savings = (20,684 – 14,669) x 200 x 0.25 = $300,750 savings with a distribution center

Step 4: Check your Work

Using the book as a reference for formulas on how to solve for the savings and other equations as well as using lecture notes to calculate the needed information. I believe that the numbers I have calculated are correct.

5. SC Facilities/Network Optimization for SunOil

Step 1: Define the Problem

1. Work though the SunOil Case Study in Chapter 5 (4th Edition) using Excel and Solver

Step 2: Create a Plan

1. Work though the SunOil Case Study using Excel and Solver

Step 3: Execute the Plan

1. Work though the SunOil Case Study using Excel and Solver

Cost and Demand Data for SunOil This shows annual demand for each of the give regions. Cell D5 shows that it costs $92,000 to produce 1 million units in North America and sell them to South America.

Inputs for capacitated plant location are: n = number of potential plant locations/capacity (each level of capacity will count as a separate location) m = number of markets or demand points Dj = annual demand from market j Ki = potential capacity of plant i fi = annualized fixed cost of keeping factory i open cij = cost of producing and shipping one unit from factory i to market j (cost includes production, inventory, transportation, and tariffs) yi = 1 if plant i is open, 0 otherwise xij = quantity shipped from plant i to market j

Spreadsheet Area for Decision Variables

The decision variables determine the amount produced in a supply region and shipped to a demand region.

Constraint and Object Function Cells B22:B26 contain the capacity constraints and cells B28:F28 contain the demand constraints. The object function is shown in cell B31 and measure the total fixed cost plus the variable cost of operating the network

Optimal Regional Network Configuration for SunOil

This shows that lowest-cost network will have facilities in South America, Asia and Africa. Further, a high-capacity plant should be planned in each region. The plant in South America meets the North American demand, whereas the European demand is met from plants in Asia and Africa

Step 4: Check your Work

Carefully going through each step of the SunOil Case Study the implementations is all correct. Except for the fact that I have unknown decimal values in some of the cells. The answer still came out the be correct so I assume that Excel Solver did something that made it like that.

6. Facility Design for Dry Ice, Inc.

Step 1: Define the Problem

1. DryIce, Inc., is a manufacture of air conditioners that has seen its demand grow significantly. The company anticipates nationwide demand for the year 2006 to be 180,000 units in the South, 120,000 units in the Midwest, 110,000 units in the East, and 100,000 units in the West. Managers at DryIce are designing the manufacturing network and have selected four potential sites – New York, Atlanta, Chicago, and San Diego. Plants could have a capacity of either 200,000 or 400,000 units. The annual fixed costs at the four locations are shown in table 5-6, along with the costs of producing and shipping an air conditioner to each of the four markets. Where should DryIce build its factories and how large should they be?

Step 2: Create a Plan

1. Determine from the data given where DryIce should build its factories and how large they should be

Step 3: Execute the Plan

1. Determine from the data given where DryIce should build its factories and how large they should be Inputs: n = number of plant locations per capacity m = number of demand points Dj = annual demand from market j Ki = potential capacity of plant i fi = fixed costs associated with keeping plant i cij = the production and transportation cost from site i to region j

Using Excel and Solver From the results we can see that building plants at Chicago and San Diego of capacity 100,000 and 410,000 respectively will be able to fulfill the demand at minimum cost. The annual total cost in terms of plants and transportation is $168,290,000.

Step 4: Check your Work

Using the book and lecture notes as a guide and reference. And following steps on using excel solver from the book. I can assume that the numbers that has been created by solver is correct.

7. Transportation for Books-on-Line

Step 1: Define the Problem

1. Books-on-Line, an online bookseller, charges its customers a shipping charge of $4 for the first book and $1 for each additional book. The average customer order contains four books. Books-on-Line currently has one warehouse in Seattle and ships all orders from there. For shipping purposes, Books-on-Line divides the United States into three zones – Wester, Central, and Easter. Shipping costs incurred by Books-on-Line per customer order is $2 within the same zone, $3 between adjacent zones, and $4 between nonadjacent zones. Weekly demand from each zone is independent and normally distributed, with a mean of 50,000 and a standard deviation of 25,000. Each book costs on average $10, and the holding cost incurred by Books-on-Line is 25 percent. Books-on-Line replenishes inventory every week and aims for a 99.7 percent CSL. Assume a replenishment lead time of one week. A warehouse is designed to carry 50 percent more than the replenishment order + safety stock. The fixed cost of a warehouse is $200,000 + x, where x is its capacity in books. The weekly operating cost of a warehouse is $0.01y, where y is the number of books shipped. Books-on-Line is planning its network strategy. Which zones should have warehouses? Detail all costs involved.

Step 2: Create a Plan

1. Create a detailed structure for Books-on-Line for which zone they should have warehouses

Step 3: Execute the Plan

1. Create a detailed structure for Books-on-Line for which zone they should have warehouses

Given information Weekly mean demand, Dm = 50,000 Standard deviation, = 25,000 Holding Cost, h = 0.25 Replenishment lead time, L = 1 week Reorder interval, T = 1 week Cycle service level, CSL = .997 Average cost per book, p = $10 Fixed cost = 200,000 + x Weekly Operating cost = 0.01y

Warehouses only in the Western Zone

50,000 books are shipped to each zone from the Western zone Safety inventory, ss = = 2.76 x = 168,267 Shipment cost for each zone differs Cost of shipment from Western zone to Eastern zone is $4 per order = 50,000 x 4/4 = 50,000 Cost of shipment from Western zone to Central zone is $3 per order = 50,000 x 3/4 = 37,500 Cost of shipment from Western zone to Western zone is $2 per order = 50,000 x 2/4 = 25,000 Since the warehouse can carry 50 percent more than the replenishment order + safety inventory. We can calculate this by (200,000 + 1.5 x (168,267 + 150,000))/52 = 13,027 We can calculate weekly operating cost by, 0.01(150,000) = 1,500 Cycle inventory cost = = / 52 = 3,606 Safety inventory cost = ss x hC = 168,267 x .25 x 10 /52 = 8,090 The total weekly cost of setting up the warehouse only in the Western zone is $138,722

Eastern

Central

Western

Eastern

0

0

0

Central

0

0

0

Western

50,000

50,000

50,000

Total Zone Demand

50,000

50,000

50,000

Safety Inventory

168,267

Shipment Cost

Eastern

0

0

0

Central

0

0

0

Western

50,000

37,500

25,000

Weekly Warehouse fixed cost

13,027

Warehouse operating cost

1,500

Weekly cycle inventory cost

3,606

Weekly safety inventory cost

8,090

Total weekly cost

50,000

37,500

51,222

Warehouse only in the Central Zone

50,000 books are shipped to each zone from the Central zone Safety inventory, ss = = 2.76 x = 168,267 Shipment cost for each zone differs Cost of shipment from Central zone to Eastern zone is $3 per order = 50,000 x 3/4 = 37,500 Cost of shipment from Central zone to Central zone is $2 per order = 50,000 x 2/4 = 25,000 Cost of shipment from Central zone to Western zone is $2 per order = 50,000 x 3/4 = 37,500 Since the warehouse can carry 50 percent more than the replenishment order + safety inventory. We can calculate this by (200,000 + 1.5 x (168,267 + 150,000))/52 = 13,027 We can calculate weekly operating cost by, 0.01(150,000) = 1,500 Cycle inventory cost = = / 52 = 3,606 Safety inventory cost = ss x hC = 168,267 x .25 x 10 /52 = 8,090 The total weekly cost of setting up the warehouse only in the Central zone is $126,222

Eastern

Central

Western

Eastern

0

0

0

Central

50,000

50,000

50,000

Western

0

0

0

Total Zone Demand

50,000

50,000

50,000

Safety Inventory

168,267

Shipment Cost

Eastern

0

0

0

Central

37,500

25,000

37,500

Western

0

0

0

Weekly Warehouse fixed cost

13,027

Warehouse operating cost

1,500

Weekly cycle inventory cost

3,606

Weekly safety inventory cost

8,090

Total weekly cost

37,500

51,222

37,500

Warehouse in each Zone

50,000 books are shipped to each zone from each zone Safety inventory, ss = = 2.76 x = 97,149 Shipment cost for each zone differs Cost of shipment from Eastern zone to Eastern zone is $3 per order = 50,000 x 2/4 = 25,000 Cost of shipment from Central zone to Central zone is $2 per order = 50,000 x 2/4 = 25,00 Cost of shipment from Western zone to Western zone is $2 per order = 50,000 x 2/4 = 25,000 Since the warehouse can carry 50 percent more than the replenishment order + safety inventory. We can calculate this by (200,000 + 1.5 x (97,149 + 50,000))/52 = 8,091 We can calculate weekly operating cost by, 0.01(50,000) = 500 Cycle inventory cost = = / 52 = 1,202 Safety inventory cost = ss x hC = 97,149 x .25 x 10 /52 = 4,671 The total weekly cost of setting up the warehouse in each zone is $118,390

Eastern

Central

Western

Eastern

50,000

0

0

Central

0

50,000

0

Western

0

0

50,000

Total Zone Demand

50,000

50,000

50,000

Safety Inventory

97,149

97,149

97,149

Shipment Cost

Eastern

25,000

0

0

Central

0

25,000

0

Western

0

0

25,000

Weekly Warehouse fixed cost

8,091

8,091

8,091

Warehouse operating cost

500

500

500

Weekly cycle inventory cost

1,202

1,202

1,202

Weekly safety inventory cost

4,671

4,671

4,671

Total weekly cost

39,463

39,463

39,463

Since the total cost of setting up warehouse in each zone is the lowest, it is recommended to have warehouse in each zone.

Step 4: Check your Work

Using the book as a reference for formulas and step by step from examples. I can say that the numbers I have calculated are correct.