Post Graduate Diploma in Management Supply Chain Management Numerical Problems Inventory & Supply Chain Management

1. An item has annual demand of 10000 units. Annual carrying cost is at the rate of 20%. Ordering cost is Rs 150 per order & purchase cost is Rs. 5.00 per unit. Calculate EOQ, Annual cost of ordering, Annual cost of carrying & Time between orders. 2. If in the above question the item is manufactured at the production rate of 500 units per week, what will be the EMQ, Annual cost of ordering, Annual cost of carrying & Time between orders. 3. A manufacturer buys cardboard boxes from a supplier. The monthly demand is 3000 boxes and is uniform throughout the year. The cost of each box is Rs. 4.00. The estimated order cost is Rs. 6.00 and the carrying cost is 2.5% per month. (a) What are the EOQ, the annual order & carrying cost? (b) If the actual demand turns out to be 6000 per month, and you have used the EOQ as calculated in sec (a), what would be the annual order & carrying cost?

4. A company manufactures cardboard box. The annual demand is 36000 boxes and is uniform
throughout the year. The cost of each box is Rs. 4.00. The estimated set up cost is Rs. 6.00 and the carrying cost is 30% per year. The production rate is 200 boxes per day. The company works for 5 days a week. What are the EMQ, the annual order & carrying cost? Calculate the purchase order cycle time. 5. A computer reseller stocks three brands of PCs; HCL, Zenith & LG. Annual demands for three brands are 12000 for HCL PCs, 1200 for Zenith PCs & 120 for LG PCs. Assume that each model costs the reseller Rs. 25000. A fixed transportation cost of Rs. 15000 is incurred each time an order is delivered. For each brand ordered and delivered on the same truck, an additional fixed cost of Rs. 2500 is incurred for receiving & storage. The reseller incurs a holding cost of 20 percent. ()a Evaluate the lot sizes that the manager at the reseller should order if lot for each brand are ordered & delivered independently. ()b What would be the optimal lot size for each brand if the manager decides to aggregate and order all three brands each time he places order. 6. A TV reseller stocks three brands of 21 TVs; LG, ONIDA & Bestavision. Annual demands for three brands are 15000 for LG TVs, 1500 for ONIDA TVs & 150 for Bestavision TVs. Assume that each model costs the reseller Rs. 6000. A fixed transportation cost of Rs. 4000 is incurred each time an order is delivered. For each brand ordered and delivered on the same truck, an additional fixed cost of Rs. 500 is incurred for receiving & storage. The reseller incurs a holding cost of 20 percent. (a) Evaluate the lot sizes that the manager at the reseller should order if lot for each brand are ordered & delivered independently. (b) What would be the optimal lot size for each brand if the manager decides to aggregate and order all three brands each time he places order.

7. Twinkle Industries, a small scale unit, is a supplier of speedometers to Jumbo Corporation, a large
150 cc two wheeler manufacturer. It supplies 20,000 speedometers to Jumbo annually. At Jumbo the ordering cost per order is Rs. 5.00 and the carrying cost is 2.5% of the product price. The price of a single unit is Rs. 200. The company presently has a policy of placing 10 orders every year. Advise the management of Jumbo as to whether it should continue with its present policy or switch over to EOQ model.

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8. Mr. Jain is a retailer of computer peripherals in Nehru Place. The fastest moving item from his shop is Samsung 15 inch colour monitor. Demand for monitors from his shop is 1500 per month. Mr. Jain incurs a fixed order placement, transportation and receiving cost of Rs. 3200 each time an order is placed. Each monitor costs Rs 3600 and the holding cost is 20%. ()a Evaluate the number of monitors Mr. Jain should order in each replenishment lot. ()b If Mr. Jain wishes to reduce the lot size to 200, by how much the order cost per lot should be reduced? 9. Assume the weekly demand of 1 Kg pack of mango pickles at a Panch Ranga (a famous brand of pickles) outlet is normally distributed with mean of 1500 and standard deviation of 300. The manufacturer takes one week to fill an order placed by the outlet. The store manager currently orders 2,000 1Kg packs when the inventory on hand drops to 2000. Evaluate the safety inventory and the average inventory carried by the outlet. Also evaluate the average time spent by a pack of 1 Kg pickle at the outlet. 10. A museum of natural history opened a gift shop two years ago. Managing inventories has become a problem. Low inventory is squeezing profit margins and causing cash flow problems. One of the top selling items in the container group at the museums gift shop is a bird feeder. Sales are 18 units per week, and the supplier charges Rs 60 per unit. The cost of placing an order with the supplier is Rs 45. Annual holding cost is 25 per cent of a feeders value, and the museum operates 52 weeks per year. Management chose a 390-unit lot size so that new orders could be placed less frequently. (a) What is the annual cost of the current policy of using a 390-unit lot size? (b) Calculate EOQ and its total cost. (c) How frequently the orders be placed if the EOQ is used? (d) If we mistakenly calculate the inventory holding cost to be Rs 30/unit/year, what is the new order quantity? How much is the percentage change from the old EOQ of 75 units? (e) With this new order quantity how much is the total cost? 11. Annual demand is of 20000 boxes. Cost of placing an order is Rs. 100. Inventory carrying cost is 20% and the purchase price of each box is Rs. 10. What should be the order quantity? If the supplier offers a discount of 1% on an order of 4000 units in one lot, would you accept this discount?

12. Consider the following set of data pertaining to an inventory system and work out the inventory
policy i.e., (a) EOQ and ROP when demand rate is constant and supply lead time is fixed (b) EOQ and ROP with uncertain demand but fixed lead time (c) EOQ and ROP with uncertain demand and uncertain lead time Annual average demand = 20000 units Standard deviation of the demand per week = 54 units Unit price = Rs. 700 Ordering cost = Rs. 4000 Inventory carrying cost = 5% Average lead time = 4 weeks Standard deviation of the lead time = 2 weeks

Service level = 75% 13. Daily demand of a product is 20 units with standard deviation of 4 units. The review period is 30 days and lead time is 19 days. There are 250 working days in a year. The cost of the product is Rs. 200 and the carrying cost is 2.5% per month. Management has set a policy of satisfying 98% of customer demand from items in the stock. At the beginning of the review period there are 150 units in the stock. How many units should be ordered? Also calculate
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inventory turns. (Value of Z at 98% if the rejection area is only on right tail is 2.05 and if the rejection area is split equally on both the tails the value of Z is 2.33) 14. A medicine retail store stocks a popular brand of over-the-counter flu and cold medicine. The average demand for the medicine is 42 packages per week with standard deviation of per day demand as 1.2 packages. A vendor for the pharmaceutical company checks the retail stores stock every two month. During one visit the store had eight packages in stock. The lead time to receive an order is 5 days. Determine the order size for this order period that will enable the store to maintain a 95% service level. 15. A supplier of valve # 1234 has offered quantity discounts for purchasing more than the present order quantities. The new volumes and prices are : Range of Order Qty. 1 - 399 400-699 700+ Price per Unit Valve Rs. 2.20 Rs. 2.00 Rs. 1.80

You are required to investigate the new prices under two sets of assumptions: (a) Orders are received all at once (b) Orders are received gradually ( finite production rate ) D = 10,000 valves per year, C = 20% of value carried per year Ordering cost = Rs. 5.50 / order and P (Finite Production Rate) = 120 valves per day 16. Nash Bakery bakes a variety of pastries, but none is more popular than its jumbo doughnuts. Doughnuts are made fresh every morning at 4:00 AM and sold throughout the day. Leftover doughnuts are put in a grab bag and sold at 75% discount the next day. Fresh doughnuts are sold for Rs. 1.20 each. The cost to make each doughnut is Rs. 0.45. The bakery has recorded first day sales data for the last 200 days. Determine how many doughnuts the bakery should bake in the morning. Doughnuts (Dozen) 2 3 4 5 6 7 8 9 10 11
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Frequency 14 18 26 32 30 26 20 18 12 2
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12 Total

2 200

17. Tivoli Dairy expects an annual demand of 80,000 butter boxes. The ordering cost is Rs 80 and the holding cost is 40% of the cost of the box which depends on the order quantity. The following is the suppliers price schedule for a box of butter: Order quantity, boxes 0 599 600 1499 1500 1999 2000 and above What is the best purchase quantity and why? Price Rs per box 20 18 15 14

Chopra & Meindl: Chapter 11: Managing uncertainty in Supply Chain

1. Evaluating safety inventory and CSL given a replenishment policies: Assume that weekly demand of computers at Computer world is normally distributed with a mean of 2500 and standard deviation of 500. The manufacturer takes two weeks to fill an order placed by the Computer World manager. The store manager currently orders 10,000 computers when the inventory on hand drops to 6000. (a) Evaluate the safety inventory and the average inventory carried by Computer World. Also evaluate the average time spent by a computer at the Computer World. (Ex 11.1 page 302) Assume that the demand is independent from one week to the next. Evaluate the CSL resulting form the above reordering policy. (Ex 11.2 page 303)

(b) 2.

Evaluating safety inventory given desired CSL: Weekly demand for Lego at a Wal-Mart store is normally distributed with a mean of 2500 boxes and a standard deviation of 500. The replenishment lead time is two weeks. Assuming a continuous review replenishment policy, evaluate the safety inventory that the store should carry to achieve a CSL of 90 percent. (Ex 11.4 page 307) Impact of supply uncertainty on safety inventory: Daily demand for PCs at Dell is normally distributed with a mean of 2500 and standard deviation of 500. A key component used in the PC assembly is the hard drive. The hard supplier takes an average of L = seven days to replenish inventory at Dell. Dell is targeting a CSL of 90 percent (providing a fill rate close to 100 percent) for its hard drive inventory. Evaluate the safety inventory of hard drives that Dell must carry if the standard deviation of the lead time is seven days. Dell is working with the supplier to reduce the standard deviation to zero. Evaluate the reduction in safety inventory that Dell can expect as a result of this initiative. (Ex 11.6 page 311) Impact of aggregation on safety inventory: A BMW Dealership has four retail outlets serving the entire Chicago area (disaggregate option). Weekly demand at each outlet is normally
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3.

4.

distributed with a mean of D = 25 cars and a standard deviation of = 5 cars. The lead time for replenishment from the manufacturer is L = 2 weeks. Each outlet covers a separate geographical area and the correlation of demand across any pair of area is . The dealership is considering the possibility of replacing the four outlets with a single large outlet (aggregate option). Assume that the demand in the central outlet would be the sum of the demand across all four areas. The dealership is targeting a CSL of 0.90. Compare the level of safety inventory needed in the two options as the correlation coefficient varies between zero and one. (Ex 11.7 page 314) 5. Information Centralization: Assume that W. W. Grainger, a supplier of MRO products, has 1600 stores distributed throughout the United States. Consider two products large electric motors and industrial cleaners. Large electric motors are high value items with low demand, where as cleaner is a low value item with high demand. Each motor costs $ 500 while each can of cleaner costs $ 30. Weekly demand for motors at each store is normally distributed with a mean of 20 and standard deviation of 40. Weekly demand for cleaner at each store is normally distributed with a mean of 1000 and standard deviation of 100. Demand experienced by each store is independent and supply lead time for both motor and cleaner is four weeks. W. W. Grainger has a holding cost of 25 percent. For each of the two products, evaluate the reduction in safety inventories that will result if they are removed from the retail stores and only carried in a centralized DC. Assume desired CSL of 0.95. (Ex 11.8 page 318) Component commonality: Assume that Dell is to manufacture 27 different PCs with three different components: processor, memory and hard drive. In the disaggregate option, Dell designs specific component for each PC, resulting in 3 x 27 = 81 distinct components. In the common component option, Dell designs three distinct processors, three distinct memory units, three distinct hard drives that can be combined to create 27 different PCs. Each component is thus used in nine different PCs. Monthly demand for each of the 27 PCs is independent and normally distributed with a mean of 5000 and a standard deviation of 3000. The replenishment lead time for each component is one month. Dell is targeting a CSL of 95 percent for component inventory. Evaluate the safety inventory requirements with and without the use of component commonality. Also evaluate the change in safety inventory requirements as the number of finished products of which a component is a part varies from one to nine. (Ex 11.9 page 323) Impact of replenishment policies on safety inventory: Weekly demand for Lego at a WalMart store is normally distributed with a mean of 2500 boxes and a standard deviation of 500. The replenishment lead time is two weeks and the store manager has decided to review inventory every four weeks. Assuming a periodic review replenishment policy, evaluate the safety inventory that the store should carry to provide a CSL of 90 percent. Evaluate the OUL (Order up to level) for such a policy. (Ex 11.10 page 328)

6.

7.

Exercises on page 332: Sunil Chopra & Peter Meindl

1. 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 CSL of 95 percent and monitors its inventory continuously. How much safety inventory of cell phones should Best Buy carry? What should their ROP be? 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 CSL of 95 percent, how much safety inventory should the store carry? What should their OUL be?
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2.

3.

Weekly demand for HP printers at a Sams 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 1000 printers each time the inventory drops to 600 printers. HP currently takes two weeks to fill an order. How much safety inventory does the store carry? What CSL does Sams Club store achieve as a result of this policy? What fill rate does the store achieve? In the Sams Club store in the above problem assume that the supply lead time from HP is normally distributed with a mean of two weeks and a standard deviation of 1.5 weeks. How much safety inventory should Sams Club carry if they want 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 ot zero in intervals of 0.5 weeks? The Gap started selling through its online channel along with its retail stores. Management has to decide which products to carry at the retail stores and which products to carry at a central warehouse to be sold only via online channel. The Gap currently has 900 retail stores in the United States. Weekly demand for large Khaki pants at each store is normally distributed with a mean of 800 and a standard deviation of 100. Each pair of pants cost $ 30. Weekly demand for purple cashmere sweaters at each store is normally distributed with a mean of 50 and a standard deviation of 50. Each sweater costs $ 100. The Gap manages all inventories using a continuous review policy and the supply lead time for both products is four weeks. The annual carrying cost is 25%. The targeted CSL is 95 percent. How much reduction in holding cost per unit sold can The Gap expect on moving each of the two products from the stores to the online channel? Which of the two products should The Gap carry at the stores and which should it carry at the central warehouse for the online channel? Why? Assume demand from one week to the next to be independent. Epson produces printers for sale in Europe in its Taiwan factory. Printers sold in different countries differ in terms of the power outlet as well as the language manuals. Currently Epson assembles and packs printers for sale in individual countries. Weekly demand in different countries is normally distributed with means and standard deviations as shown in the table below:

4.

5.

6.

Weekly Demand for Epson Printers in Europe Country France Germany Spain Italy Portugal UK Mean Demand 3000 4000 2000 2500 1000 4000 Standard Deviation 2000 2200 1400 1600 800 2400

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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 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 result? 7. Return to the Epson data in the above problem. Each printer costs Epson $ 200 and they have a holding cost of 25 percent. What saving in holding cost can they expect as a result of building the European DC? If finally assembly in the European DC adds 45 to the production cost of each printer, would you recommend the move? Suppose that Epson is able to cut the production and delivery time from its Taiwan factory to four weeks using good information systems. How much savings in holding cost can they expect without the European DC? And with European DC? Return to the Epson data in the above problem. Assume that demand in different countries is not independent. Demand in any pair of countries is correlated with a correlation coefficient of ( r ). Evaluate the holding cost savings that Epson gains as a result of building a European DC as ( r ) increases from zero (independent demand) to 1 (perfectly positively correlated demand) in intervals of 0.2. You need 50,000 units per year of a given part, and that part costs you $4 per unit. In addition to purchasing cost, every order for that part has a fixed administrative cost of $800 (regardless of order size). Assuming an inventory holding cost of 30% per annum, what is the optimal number of inventory turns per year?

8.

9.

10. A warehouse facing a weekly customer demand N(100,20) replenishes its stock every month from a vendor with a 2 week delivery lead-time. What is the order-up-to level required to achieve a service level of 99%? Example 3.7 page 61: Designing and Managing the Supply Chain Simchi-Levi
1. Suppose the distributor of the TV sets is trying to set the inventory policies at the

warehouse for one of the TV models. Assume that whenever the distributor places an order for TV sets, there is a fixed ordering cost of $ 4500, which is independent of the order size. The cost of TV set to the distributor is $ 250 and the annual inventory holding cost is about 18 percent of the product cost. Replenishment time is about two weeks. Following table provides data on the number of TV sets sold in each of the last 12 months. Given that the distributor would like to ensure 97 percent service level (z = 1.9), what is the reorder level and the order-up-to-level that the distributor should use?

Historical Data Month

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Sept

Oct

Nov

Dec

Jan
7

Feb

Mar

Apr

May Jun

July

Aug

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Sales

200

152

100

221

287

176

151

198

246

309

98

156

The above table implies that average monthly demand is 191.17 and the standard deviation of monthly demand is 66.53. If the distributor places an order every three weeks, how the reorder level and order-up-to-level will change? Sunil Chopra Chapter 5 Exercises on page 110 onwards 1. Capacitated Plant Location Model: Sun Oil is a manufacturer of petrochemical products with worldwide sales. The Vice President of Supply Chain is considering several alternatives to meet demand. One alternative is to set up plants in each region advantages are lower transportation costs and avoidance of import duties but the disadvantages are not able to fully exploit economies of scale (plant will be sized to meet the local demand). Other alternative is to consolidate plants in few regions this will improve economies of scale but would increase transportation costs and import duties. Annual demands for each of the five regions are displayed below:

Cost and Demand Data for Sun Oil Inputs - Costs, Capacities, Demands Demand Region - Production & transportation costs per 1,000,000 units Supply Region N. America S. America Europe Asia Africa Demand N. America 81 117 102 115 142 12 S. America 92 77 105 125 100 8 Europe Asia Africa 101 108 95 90 103 14 130 98 119 59 105 16 115 100 111 74 71 7 6000 4500 6500 4100 4000 10 10 10 10 10 9000 6750 9750 6150 6000 20 20 20 20 20

Fixed Low Fixed Cost Capacity Cost

High Capacity

Variable production, inventory and transportation costs are shown above. For example it costs $ 92,000 to produce one million units in North America and sell them in South America. Sun Oil is considering two different plant sizes in each location. Low capacity plants can produce 10 million units per year where as high capacity plants can produce 20 million units. Fixed costs for setting up low and high capacity plants at each of the locations are also displayed.
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The Vice President would like to know what the low cost network would look like.

2.

Gravity Location Model: Steel Appliances (SA), a manufacturer of high quality refrigerators and cooking ranges. SA has one assembly factory located near Denver from which they supply to entire United States. Demand has increased and the CEO of SA has decided to set up another plant to serve its eastern markets. The Supply Chain Manager is asked to find a suitable location for the new factory. Three parts plants located at Buffalo, Memphis and St. Louis will supply parts to the new factory. This factory will serve markets in Atlanta, Boston, Jacksonville, Philadelphia and New York. The coordinates of location, demand in each market, required supply from each parts plant and the shipping costs are shown in the table below:

Sources/ Markets Buffalo Sources Memphis St. Louis Atlanta Boston Markets Jacksonville Philadelphia New York

$/Ton Mile F(n) 0.90 0.95 0.85 1.50 1.50 1.50 1.50 1.50

Tons D(n) 500 300 700 225 150 250 175 300

Coordinates x(n) 700 250 225 600 1050 800 925 1000 y(n) 1200 600 825 500 1200 300 975 1080

Where x(n), y(n): Coordinate location of either a market or supply source n F(n): Cost of shipping one unit for one mile between the facility and either market or supply source n D(n): Quantity to be shipped between facility and market or supply source n

3.

Network Optimization Models: Both TelecomOne and HighOptic are manufacturers of fibre optic telecommunication equipment. TelecomOne has focused on the eastern half of the United
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States. It has manufacturing plants located in Baltimore, Memphis, and Wichita and serves markets in Atlanta, Boston, and Chicago. HighOptic has targeted the western half of the United States and serves markets in Denver, Omaha and Portland. HighOptic has plants located in Cheyenne and Salt Lake City. Plant capacities, market demand, variable production and transportation cost per thousand units shipped, and fixed costs per month at each plant are shown below:

Decision Variables for TelecomOptic Inputs - Costs, Capacities, Demands Demand Region - Production & transportation costs per 1,000 units (Thousand $) Supply Region Baltimore Memphis Witchia Hi -Salt Lake City Hi -Cheyenne Demand Atlanta 1675 380 922 1925 1460 10 Boston 400 1355 1646 2400 1940 8 Chicago 685 543 700 1425 970 14 Denver 1630 1045 508 500 100 6 Omaha 1160 665 311 950 495 7 Portland 2800 2321 1797 800 1200 11 Monthly Capacity Thousand Units 18 22 31 27 24 Monthly fixed cost Thousand $ 7650 4100 2200 5000 3500

Management at both TelecomOne and HighOptic has decided to merge the two companies into a single entity to called TelecomOptic. Management feels that significant benefits will result if the two networks are merged appropriately. TelecomOptic will have five factories from which to serve six markets. Management is debating whether all five factories are needed. They have assigned a supply chain team to study the network of combined company and identify the plants that should be shut down. Help them in making this decision. 4. Network Optimization Models: Deciding Plants and Warehouses together: Consider the following distribution system:
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Single product Two plants, referred to as P1 and P2 Plant P2 has an annual capacity of 60,000 units The two plants have the same production costs
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Two existing warehouses, referred to as W1 and W2, have identical warehouse handling costs Three market areas: C1, C2 and C3, with demands of 50,000, 100,000 and 50,000 units respectively

Following table provides distribution cost per unit. For instance, distributing one unit from plant P1 to warehouse W2 costs $5.

Distribution costs per unit Facility Warehouse W1 W2 P1 0 5 P2 4 2 C1 3 2 C2 4 1 C3 5 2

Companys objective is to find a distribution strategy that specifies the flow of products from the suppliers through the warehouses to the market areas without violating the plant P2 production capacity constraint that satisfies market demands, and minimizes the total distribution costs.

Buyer Seller Relationship

1. Swimsuit Production Consider a company that designs, produces and sells summer fashion items such as swimsuits. About six months before summer, the company must commit itself for all its products. Since there is no clear indication as to how the market will respond to the new designs, the company needs to use various tools to predict demand for each design, and plan production and supply accordingly. In this setting trade-offs are clear: overestimating customer demand will result in unsold inventory while underestimating customer demand will lead to inventory stock outs and loss of potential customers. To assist management in these decisions, the marketing department uses historical data from the last five years, current economic conditions and other factors to construct a probabilistic forecast of the demand for swimsuits. They have identified several possible scenarios for sales in the coming season, based on such factors as possible weather conditions and competitive behaviours, and assigned each a probability, or chance of occurrence. The scenarios are given in the following table. The probabilistic forecast suggests that the average demand is about 13100 units but there is probability that it could be more or less than average. Demand 8000 10000
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Probability 0.110 0.110

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12000 14000 16000 18000 Average

0.275 0.225 0.185 0.095 13100

Additional information available to the manufacturer includes: To start production the manufacturer has to invest $100,000 independent of the quantity produced. We refer to this as fixed production cost The variable production cost per unit equals $ 80. During the summer season, the selling price of a swimsuit is $ 125 per unit Any swimsuit not sold during the summer season is sold to a discount store for $ 20. We refer to this value as salvage value (a) What is the best production quantity? (b) How much is the profit if there is no beginning inventory, manufacturer produces 12000 swimsuits while the demand is 13000 swimsuits? (c) Calculate the profit if the company produces 12000 swimsuits and the demand is for 11000 swimsuits (d) What is the weighted average profit if the company makes 9000 swimsuits? (e) And if it makes 16000 swim suits? (f) Suppose the beginning inventory is 5000 swimsuits. If does not produce max 5000 swimsuits can be sold. If starts production, fixed cost will be charged. Assuming same demand pattern. Should the manufacturer start production? If yes, how many swimsuits should be produced? (g) What should be the decision if the beginning inventory is 10,000 swimsuits? (h) Buy back contract: Retailer proposes that unsold goods should be taken back by the manufacturer under Buy back arrangement for $55 per unit. How much should be ordered? What will be profits if 12000, 14000 or 16000 units are ordered? (i) Revenue Sharing Contract: Manufacturer and retailer have a revenue sharing contract, Manufacturer agrees to decrease the whole sale price from $80 to $60, In return retailer provides 15% of the product revenue to the manufacturer. What will be the profits 12000, 14000 or 16000 units are ordered? (j) Explain sequential and global optimization of Supply Chain. 2. A retailer is contemplating to place order for the woolen garments for children for the next winter season. To avail bulk discount the retailer plans to order once for the entire season which lasts for barely three months. The average selling price of a particular type of garment sold is Rs. 150 per unit. The wholesale price paid by the retailer to the concerned manufacturer is Rs. 100 per unit. Instead of undergoing the hassles of storing woolen
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Based on the above information answer the following questions:

garments during off season and also to avoid the risk of fashion change and damage, the retailer prefers to dispose off unsold stock at the end of the season at a discount store at Rs. 20 per unit. The manufacturer incurs fixed production cost of Rs. 50000 and the variable production cost per unit is Rs. 70. All other costs are not considered. From the past experience the retailer estimates that the demand to be Sr. No. 1. 2. 3. 4. Demand in units 1000 2000 3000 5000 Probability 0.20 0.20 0.30 0.30

If the retailer has decided to order 4000 units of garments, determine which supply contract out of the following three is most beneficial to both retailer and manufacturer: (1) Sequential Optimization (2) Buyback Contract: Manufacturer offers to buy back the unsold garments from retailer for Rs. 35 per unit (3) Revenue Sharing Contract: Manufacturer and retail have a revenue sharing arrangement in which the manufacturer agrees to decrease the wholesale price from Rs. 100 to Rs. 80 per unit and in return, the retailer provides ten percent of the product revenue to the manufacturer.
D2. Solve the following transportation network model and determine the minimum cost of transportation: From/To Mkt 1 Plant 14 Warehouse 24 Demand 32 Mkt 2 24 15 14 Mkt 3 21 28 18 Mkt 4 20 20 17 Mkt 5 21.5 18.5 18 Mkt 6 19 19.5 16 Mkt 7 17 24 15 Mkt 8 30 28 20 Supply 120 50

The firm wishes to explore the feasibility of building a cross dock facility near markets 3, 4, 5 and 6 with maximum capacity of 40 units and following cost of transportation: From Plant Warehouse From Cross Dock To Mkt 3 4 To Cross Dock 10 5 To Mkt 4 5 To Mkt 5 5 To Mkt 6 6

Determine the revised transportation cost and calculate the percent increase or decrease.

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