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ENGR 3700 – Homework 6 (Chapters 11-14) All answers must be typed and sent via email Please save files as: ENGR3700_HW6_Last Name_First Name 1. The EGAD Bottling Company has decided to introduce a new line of premium bottled water that will include several “designer” flavors. Marketing manager Georgianna Mercer is predicting an upturn in demand based on the new offerings and the increased public awareness of the health benefits of drinking more water. She has prepared aggregate forecasts for the next six months, as shown below (quantities are in tankloads). Month Forecast May 50 June 60 July 70 August 90 September October 80 70 Total 420 Production manager Mark Mercer (no relation to Georgianna) has developed the following information. (Costs are in thousands of dollars) Regular production cost Regular production capacity Overtime production cost Subcontracting cost Holding Cost Backordering cost Beginning inventory $1 per tankload 60 tankloads $1.6 per tankload $1.8 per tankload $2 per tankload per month Backorders not allowed 0 tankloads Among the strategies being considered are the following: a) Level production supplemented by up to 10 tankloads a month from overtime. b) A combination of overtime, inventory, and subcontracting. Regular production should be the same each month. c) Using overtime for up to 15 tankloads per month, along with inventory to handle variations. Regular production should be the same each month. Questions: i. The objective is to choose the plan that has the lowest cost. Which plan would you recommend? ii. Presumably, information about the new line has been shared with supply chain partners. Explain what information should be shared with various partners, and why sharing that information is important. 2. A manager must set up inventory ordering systems for two new production items, P34 and P35. P34 can be ordered at any time, but P35 can be ordered only once every four weeks. The company operates 50 weeks a year, and the weekly usage rates for both items are normally distributed. The manager has gathered the following information about the items: Average weekly demand Standard deviation Unit cost Annual holding cost Ordering Cost Lead time Acceptable stockout risk Item P34 60 units 4 units per week $15 30% $70 2 weeks 2.5% Item P35 70 units 5 units per week $20 30% $30 2 weeks 2.5% a) When should the manager reorder each item? b) Compute the order quantity for P34. c) Compute the order quantity for P35 if 110 units are on hand at the time the order is placed. 3. The probability that equipment used in a hospital lab will need recalibration is given in the following table. A service firm is willing to provide maintenance and provide any necessary calibrations for a fee of $650 per month. Recalibration costs $500 per time. Which approach would be most cost-effective, recalibration as needed or the service contract? Number of 0 Recalibrations Probability of .15 Occurrence 1 2 3 4 .25 .30 .20 .10 ...
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