Review for Midterm 2

OPSM 301
 Practice Problems
Problem 1:
A major drug store chain wishes to build a new warehouse to serve the whole
Midwest. At the moment, it is looking at three possible locations. The factors,
weights, and ratings being considered are given below:
Ratings
Factor Weights Peoria Des Moines Chicago
Nearness to markets 20 4 7 5
Labor cost 5 8 8 4
Taxes 15 8 9 7
Nearness to suppliers 10 10 6 10

Which city should they choose?

 Practice Problems
Problem 1:
Based upon the weights and rating,
A major drug store chain
Des
wishes
Moines to build
shoulda new
be chosen.
warehouse to serve the whole
Midwest. At the moment, it is looking at three possible locations. The factors,
weights, and ratings being considered are given below:
Weighted
RatingsRatings
Factor Weights Peoria Des Moines Chicago
Nearness to markets 20 80
4 140
7 100
5
Labor cost 5 40
8 40
8 20
4
Taxes 15 120
8 135
9 105
7
Nearness to suppliers 10 100
10 60
6 100
10
Total 340 375 325
Which city should they choose?
 Practice Problems
Problem 2:
Balfours is considering building a plant in one of three possible locations.
They have estimated the following parameters for each location:

Location Fixed Cost Variable Cost

Waco, Texas $300,000 $5.75
Tijuana, Mexico $800,000 $2.75
Fayetteville, Arkansas $100,000 $8.00

For what unit sales volume should they choose each location?
 Practice Problems
Transition
Problem 2: between Waco and Tijuana
300,000 + 5.75x = 800,000 + 2.75x
Balfours is considering building a plant in one of three possible locations.
3x = 500,000
They have estimated the following parameters for each location:
x = 166,000

Location Fixed Cost Variable Cost

Waco, Texas $300,000 $5.75
Tijuana, Mexico $800,000 $2.75
Fayetteville, Arkansas $100,000 $8.00
Transition between Waco and Fayetteville
For what unit sales volume should they choose+ 5.75x
300,000 each location?
= 100,000 + 8.00x
2.25x = 200,000
x = 88,888
 Practice Problems
Transition
Problem 2: between Waco and Tijuana
Transition between Waco and Fayetteville
300,000 + 5.75x = 800,000 + 2.75x
LocateinFayetteville
Balfours is considering building a plant 300,000
in one of+ three
5.75x possible
= 100,000locations.
+ 8.00x
3x = 500,000
They have estimated the following parameters for each2.25xlocation:
= 200,000
x = 166,000
x = 88,888
Location Fixed Cost Variable Cost
Waco, Texas $300,000 $5.75
Tijuana, Mexico $800,000 $2.75
Fayetteville, Arkansas $100,000 $8.00

For what unit sales volume should they choose each location?
 Practice Problems
Problem 3:
Our main distribution center in Phoenix, AZ is due to be replaced with a
much larger, more modern facility that can handle the tremendous needs
that have developed with the citys growth. Fresh produce travels to the
seven store locations several times a day making site selection critical for
efficient distribution. Using the data in the following table, determine the
map coordinates for the proposed new distribution center.
 Practice Problems
Problem 3:
Our main distribution center in Phoenix, AZ is due to be Truck replaced withTrips
Round a
much larger,
Storemore modern facility
Locations Mapthat can handle
Coordinates (x, the
y) tremendous needs
per Day
that have developed with the citys growth. Fresh produce travels to the
Mesa (10, 5) 3
seven store locations several times a day making site selection critical for
Glendale (3, 8) 3
efficient distribution. Using the data in the following table, determine the
Camelback
map coordinates for the proposed new(4, 7)
distribution center. 2
Scottsdale (15, 10) 6
Apache Junction (13, 3) 5
Sun City (1, 12) 3
Pima (5, 5) 10
 (10*3) + (3*3) + (4*2) + (15*6) + (13*5) + (1*3) + (5*10) 255
Practice Problems
Cx = 3 + 3 + 2 + 6 + 5 + 3 + 10 = 32 = 7.97

Problem 3: Cy =
(5*3) + (8*3) + (7*2) + (10*6) + (3*5) + (12*3) + (5*10) 214
= 32 = 6.69
3 + 3 + 2 + 6 + 5 + 3 + 10

Our main distribution center in Phoenix, AZ is due to be Truck replaced withTrips

Round a
much larger,
Storemore modern facility
Locations Mapthat can handle
Coordinates (x, the
y) tremendous needs
per Day
that have developed with the citys growth. Fresh produce travels to the
Mesa (10, 5) 3
seven store locations several times a day making site selection critical for
Glendale (3, 8) 3
efficient distribution. Using the data in the following table, determine the
Camelback
map coordinates for the proposed new(4, 7)
distribution center. 2
Scottsdale (15, 10) 6
Apache Junction (13, 3) 5
Sun City (1, 12) 3
Pima (5, 5) 10
Problem 4:
Practice Problems
John Galt Shipping wishes to ship a product that is made at two different
factories to three different warehouses. They produce 18 units at Factory A
and 22 units at Factory B. They need 10 units in warehouse #1, 20 units in
warehouse #2, and 10 units in warehouse #3. Per unit transportation costs
are shown in the table below. How many units should be shipped from
each factory to each warehouse?

Warehouse #1 Warehouse #2 Warehouse #3

Plant A $4 $2 $3
Plant B $3 $2 $1
Problem 1:
Practice Problems
John Galt Shipping wishes to ship a product that is made at two different
factories to three different warehouses. They produce 18 units at Factory A
and 22 units at Factory B. They need 10 units in warehouse #1, 20 units in
warehouse #2, and 10 units in warehouse #3. Per unit transportation costs
are shown in the table below. How many units should be shipped from
each factory to each warehouse?

Warehouse #1 Warehouse #2 Warehouse #3

Plant A $4 $2 $3
Plant B $3 $2 $1
Problem 5:
Practice Problems
Assume that in Problem 1 the demand at each warehouse is increased by
4 units. Now how many units should be shipped from each factory to each
warehouse?

Warehouse #1 Warehouse #2 Warehouse #3

Plant A $4 $2 $3
Plant B $3 $2 $1
Problem 2:
Practice Problems
Assume that in Problem 1 the demand at each warehouse is increased by
4 units. Now how many units should be shipped from each factory to each
warehouse?

Warehouse #1 Warehouse #2 Warehouse #3

Plant A $4 $2 $3
Plant B $3 $2 $1
 Practice Problems
Problem 6:
What are the appropriate ABC
groups of inventory items?
 Practice Problems
ABC Analysis
Problem 6: Percent of
Stock Number Annual $ Volume Annual $ Volume
What are the appropriate ABCJ24 12,500 46.2
groups of inventory items?
R26 9,000 33.3
L02 3,200 11.8
M12 1,550 5.8
P33 620 2.3
T72 65 0.2
S67 53 0.2
Q47 32 0.1
V20 30 0.1
= 100.0
 Practice Problems
ABC Analysis
Problem 1: Percent of
Stock Number Annual $ Volume Annual $ Volume
What are the appropriate ABCJ24 12,500 46.2
groups of inventory items?
R26 9,000 33.3
L02 3,200 11.8
M12 1,550 5.8
ABC Groups
P33 620 2.3
Annual Percent of
T72 65 0.2
Class Items Volume $ Volume
S67 53 0.2
A J24, R26 21,500 79.5
Q47 32 0.1
B L02,
V20
M12 30
4,750 17.6
0.1
C P33, &72, S67, Q47, V20 800 =2.9
100.0
= 100.0
 Practice Problems
Problem 7:

Assume you have a product with the following parameters:

Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?
 Practice Problems
Problem 7:

Assume you have a product with the following parameters:

Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?

2 * Demand * Order Cost 2 * 360 * 100

EOQ = = =
Holding Cost 1

72000 = 268.33 items

 Practice Problems
Problem 8:
Given the data from Problem 7, and assuming a 300-day work year, how
many orders should be processed per year? What is the expected time
between orders?
 Practice Problems
Problem 8:
Given the data from Problem 3, and assuming a 300-day work year, how
many orders should be processed per year? What is the expected time
between orders?

Demand 360
N= = = 1.34 orders per year
Q 268

Working days 300

T= = = 224 days between orders
Expected number of orders 1.34
 Practice Problems
Problem 9:
What is the total cost for the inventory policy used in Problem 7?
 Practice Problems
Problem 9:
What is the total cost for the inventory policy used in Problem 7?

Demand * Order Cost Quantity of Items * Holding Cost

TC = +
Q 2
360 * 100 268 * 1
= + = 134 + 134 = $268
268 2
 Practice Problems
Problem 10:
Litely Corp sells 1,350 of its special decorator light switch per year and
places orders for 300 of these switches at a time. Assuming no safety
stocks, Litely estimates a 50% chance of no shortages in each cycle and
the probability of shortages of 5, 10, and 15 units as 0.2, 0.15, and 0.15
respectively. The carrying cost per unit per year is calculated as $5 and the
stockout cost is estimated at $6 ($3 lost profit per switch and another $3
loss of goodwill or future sales). What level of safety stock should Litely
use for this product? (Consider safety stock of 0, 5, 10, and 15 units.)
Safety stock = 0 units
Carrying cost = $0
Practice
Safety stock = 5Problems
units
Safety stock = 10 units
Carrying cost = $5/unit * 5 units
Problem
Total 10:=
Stockout Costs Carrying cost = $5/unit * 10 units
(stockout costs * possible 1350
units of shortage * probability S5 = 6 * 5 * .15 * + 1350 =
300 S = 6 * 5 * .15 *
ofLitely Corp sellsof1,350 of its special decorator light switch per year300and
10
shortage * number 1350
places
orders orders for 300 of these
per year) 6 * 10switches
* .15 *
300at a time. Assuming
= no safety
$20.25
stocks, Litely estimates a 50% chance of no shortages in each cycle and
1350
S0the
= 6 probability
* 5 * .2 * + $60.75
300of shortages of 5, 10, and 15 units asTotal 0.2,cost0.15, and 0.15
= Carrying cost +
respectively. The 1350carryingTotal
costcost
per= Carrying
unit percostyear+ is calculated as $5
Stockout cost = and the
6 * 10 * .15 * + $50 + $20.25 = $70.25 $3
stockout cost is300estimated at $6cost
Stockout ($3= lost profit per switch and another
1350
loss6 *of15 goodwill
* .15 * 300or=future$25
sales).
+ $60.75 What level of Safety
= $85.75 safetystock
stock
= 15should
units Litely
use for this product? (Consider safety stock of 0,Carrying 5, 10, and
cost =15 units.)
$5/unit * 15 units
$128.25
Stockout cost = $0

Total cost = Carrying cost +

Stockout cost =
$75 + $0 = $75.00
 Practice Problems
Problem 11:
Presume that Litely carries a modern white kitchen ceiling lamp that is
quite popular. The anticipated demand during lead-time can be
approximated by a normal curve having a mean of 180 units and a
standard deviation of 40 units. What safety stock should Litely carry to
achieve a 95% service level?
 Practice Problems
Problem 11:
Presume that Litely carries a modern white kitchen ceiling lamp that is
quite popular. The anticipated demand during lead-time can be
approximated by a normal curve having a mean of 180 units and a
standard deviation of 40 units. What safety stock should Litely carry to
achieve a 95% service level?

To find the safety stock for a 95% service level it is necessary to

calculate the 95th percentile on the normal curve. Using the standard
Normal table from the text, we find the Z value for 0.95 is 1.65
standard units. The safety stock is then given by:

(1.65 * 40) + 180 = 66 + 180 = 246 Ceiling Lamps

Problem 12:
Practice Problems
A new shopping mall is considering setting up an information desk manned
by one employee. Based upon information obtained from similar information
desks, it is believed that people will arrive at the desk at a rate of 20 per hour.
It takes an average of 2 minutes to answer a question. It is assumed that the
arrivals follow a Poisson distribution and answer times are exponentially
distributed.
Problem 1:
Practice Problems
A new shopping mall is considering setting up an information desk manned
a. Find the probability that the employee is idle.
by one employee. Based upon information obtained from similar information
b. Find the proportion of the time that the employee is
desks, it is believed that people will arrive at the desk at a rate of 20 per hour.
busy.
It takes an average of 2 minutes to answer a question. It is assumed that the
c. Find the average number of people receiving and
arrivals follow a Poisson distribution and answer times are exponentially
waiting to receive some information.
distributed.
d. Find the average number of people waiting in line to
get some information.
e. Find the average time a person seeking information
spends in the system.
f. Find the expected time a person spends just waiting
in line to have a question answered (time in the
queue).
Problem 12:
Practice Problems
A new shopping mall is considering setting up an information desk manned
a. Find the probability that the employee is idle.
by one employee. Based upon information obtained from similar information
b. Find the proportion of the time that the employee is
desks, it is believed that people will arrive at the desk at a rate of 20 per hour.
busy.
It takes an average of 2 minutes to answer a question. It is assumed that the
c. Find the average number of people receiving and
arrivals follow a Poisson
waiting / and
a. Pdistribution
= 1receive
0 to = 1answer
some
times
information.
20 / 30 = 0.33 33%
are exponentially
distributed. b. the / = 0.66
p = average 66%
d. Find number of people waiting in line to
get
c. some
Ls = information.
/ ( ) = 20 / (30 20) = 2 people
e. Find the average time a person seeking information
d. Lq = 2 / ( ) = 202 / 30(30 20) = 1.33 people
spends in the system.
e. the
f. Find 1 / ( time
Ws =expected ) = a1 person
/ (30 spends
20) = 0.10
justhours
waiting
inf.lineWto =have
/ a(
question answered
) = 20 / 30(30(time
20)in= the
0.0667hours
q
queue).
Problem 13:
Practice Problems
Assume that the information desk employee in Problem 12 earns $5 per
hour. The cost of waiting time, in terms of customer unhappiness with the
mall, is $12 per hour of time spent waiting in line. Find the total expected
costs over an 8-hour day.
Problem 2:
Practice Problems
From the solution to Problem 12:
Assume that the information desk employee in Problem 1 earns $5 per hour.
The average person waits 0.0667 hours and there are
The cost of waiting time, in terms of customer unhappiness with the mall, is
160 (20 arrivals * 8 hours) arrivals per day.
$12 per hour of time spent waiting in line. Find the total expected costs over
an 8-hour day.
Therefore: Total waiting time = 160 x 0.0667 = 10.67 hours

Total cost for waiting = Total waiting time * Cost per hour =
10.67 * $12 = $128 per day.

Salary cost = 8 hours * $5 = $40

Total cost = Salary cost + Waiting cost = $40 + $128 =

$168 per day.
Problem 14:
Practice Problems
Three students arrive per minute at a coffee machine that dispenses exactly
four cups per minute at a constant rate. Describe the system parameters.
Problem 14:
Practice Problems
Three students arrive per minute at a coffee machine that dispenses exactly
four cups per minute at a constant rate. Describe the system parameters.

2
Lq = = 1.125 people in the queue on average
2( )

Wq = 2( ) = 0.375 minutes in the queue waiting

Ls = Lq + = 1.87 people in the system
1
Ws = Wq + = 0.625 minutes in the system