Q1)- (Uncertainty of Demand at DogCo): You have joined Dog Co - the leading dog

supplies and food store operating in the United States. You discover that prior to your arrival
all inventory and stocking decisions were being made on just the average weekly demand.
The distribution of the demand was being tracked, but it was not being used at all in any of
the inventory calculations. Your manager, Hank, however, does not think you need to
consider the distribution of demand. "The average has always been good enough for me!" he
proclaims often and loudly. He prefers to use the average demand and then add in 10% on
top, "Just to be safe". This is known as "Hank's Rule" at Dog Co. You do not want to get fired,
but you would like to demonstrate to Hank that the distribution of demand does matter and
perhaps "Hank's Rule" should be changed.

(a)- You identified two SKUs that have common average weekly demand, but very different
standard deviations. SKU Wilson Chew Toys cost $5.95 each and you sell them for $9.99. The
weekly demand is distributed normally with a mean of 625 units and a standard deviation of
225 units. SKU Dexter Delight Dog Treats cost $4.25 and you sell them for $8.00. The weekly
demand is distributed normally with a mean of 630 units and a standard deviation of 50
units. If you stocked exactly the mean of the demand for any one of the items (that is 625 of
the Wilson Chew Toys or 630 of the Dexter Delights), what is the probability that your
demand will exceed what you have in stock for that item? Just enter a number from 0 to 1.00
for the probability.
(b)- Using the same two SKUs, you want to see how Hank's Rule applies to each of the
products and how it impacts the probability of stocking out. What is the probability that the
weekly demand for the Wilson Chew Toys will exceed the level set by Hanks Rule, that is
setting the inventory level at 688 (= 625 + 62.5)? Just enter a number from 0 to 1.00 for the
probability.
(c)- What is the probability that the weekly demand for the Dexter Delights Dog Treats will
exceed the level set by Hanks Rule, that is setting the inventory level at 693 (= 630 + 63)? Just
enter a number from 0 to 1.00 for the probability.
(d)- Even after presenting your analysis, Hank is hesitant to change his rules.
What should you do?
A- Quit Dog Co and get a job at Zaragoza Auto Supply or Boston Arts
B- Suggest that Hank take a course in Operations Management
C- Create a presentation that demonstrates how the lost sales and/or extra inventory
costs impact Hank's bonus
D- Create a presentation that demonstrates how the lost sales and/or extra inventory
costs impact Dog Co for Hank to use in a presentation to his boss
Q2)- (ShopCo): ShopCo is a North America based large store format retailer of home
improvement products with >2,000 stores. Each ShopCo store generally operates
independently, ordering and receiving product directly from its suppliers.
One supplier (Hurricane Drills) sells a portfolio of electric drills that, on average,
cost ShopCo $75 each. Each store uses periodic review policies to order directly from
Hurricane and uses an annual holding charge of 15%. Assume 52 week year.

(a)- Find the (R, S) ordering policy for Hurricane drills for store #1301 given:
Forecasted annual demand of Hurricane drills is ~N(3,400, 400)
Lead Time is 1 week
Review Period is 4 weeks
Desired CSL = 95%
Hurricane has a minimum order quantity (MOQ) of 240 drills
Orders need to be in multiples of 12 drills to fit on pallets

(b)- What is the expected annual cost of cycle and safety stock?
Solution:
Finding Order Policy:
Find Q = D*R = (3,400 units/year)(4/52 years) = 261.5 ≈ 264 units (why?)
Find R+L = 4 weeks + 1 week = 5 weeks or 0.0962 years
so that, n= 52/5 = 10.4 “coverage” periods per year
Find μDL+R = (3,400)/(10.4) = 326.9 ≈ 327 units
Find σDL+R = (400)/(√10.4) = 124.03 ≈124 units
Find z where CSL = 0.95 or P[x≤k] = 0.95, z=1.644 = 1.64
Find ROP = μDL+R + zσDL+R = 327 + (1.64)(124) = 530.4 ≈ 530 units
Policy: Order when stock is 530 units, every 4 weeks.
Finding Cost of Cycle & Safety Stock:
Cost of Cycle Stock = ce(DR/2) = (75)(0.15)(264/2) = $1,485 per year
Cost of Safety Stock = ce*zσDL+R = (75)(0.15)(1.64)(124) = $2,288 per year

Q3)- (Volta Car Batteries): An auto parts supplier sells electric batteries to the most
promising electric car manufacturer, a company called Volta. The annual demand is
approximately 360 batteries. The supplier estimates that the annual holding cost is $1.00 per
unit. It costs approximately $100 to place an order (managerial and clerical costs).
Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order

(a)- What should your economic order quantity be, in batteries? Round to the nearest integer
value.
(b)- Using the solution from part 1 and assuming a 300-day work year, how many orders
should be processed per year? Enter the answer with 2 decimal places
(c)- What is the expected time between orders in days? Enter the answer as an integer.
(d)- What is the annual total relevant cost for this inventory policy? Round to the nearest
integer and do not enter the dollar sign.
(e)- Based on the results from previous questions, suppose the actual demand was 500 units
per year instead of the 360 units that you used to calculate the EOQ. But, you still used the
order quantity determined in part 1 (268 units). What will be the actual total relevant cost?
Round to the nearest integer and do not enter the dollar sign.

Q4)- (New Day Electronics): You have been hired by New Day Electronics Inc. (NDE), an
original device manufacturer (ODM) of low-end smart phones, based in China. Each smart
phone is powered by an application processor (AP), which serves as the 'brain' that makes the
phone 'smart'. Although NDE assembles the phones, it does not make the APs. Instead, all the
APs are procured from a microchip manufacturer based in Vietnam. The APs are produced in
a facility that is in high demand, which means there is usually a long lead time for the delivery
of the products after the order is placed. You are in charge of managing the inventory for the
APs. You have decided to use an (s,Q) Continuous Review Inventory policy. NDE's annual
demand for APs item is normally distributed with a mean of 2,500 units. Based on the RMSE,
you know that the standard deviation of the AP demand is 224 units per year. Each AP costs
you $10. Placing an order is extremely cheap: you calculate it only costs you $5 to place each
order. The lead-time is constant and equal to 10 weeks. For the purpose of this problem,
assume there are 52 week in a year. The holding charge is 25% annually. Please enter all your
numerical answers with 4 significant figures unless directed otherwise.
(a)- What is the economic order quantity, Q*, for the APs? Round to the nearest integer. Let's
assume that you have come up with the following values: Z = 1.98 and Q* = 144. With this
policy, what will be your new reorder point, s? Round to the nearest integer. What is the
reorder point if you think LOS should be 95%?
(b)- The manager of the smart phone product line suggests that you use a (R, S) periodic
review inventory policy and proposes ordering every 4 weeks. Using the Z value from Part 1
for the manager’s order policy, what is the order up to level, S?
(c)- Your regional director of procurement wants to consolidate things. He has negotiated
with the vendor and is proposing that you set up a weekly periodic review system. However
the vendor has now increased its lead time from 10 weeks to 13 weeks. Using the k value
from Part 1 what is the order up to level, S, as per the regional director’s new policy?