Industrial Engineering Department IEG 413
COLLEGE OF ENGINEERING AND ARCHITECTURE Industrial Engineering Department IEG 413 HW3 Note: • This HW you can work on it in a group of 3 or 4 members. Only 1 member submit the work but make sure to include all the names of the group members on the cover page. • Please include the proper covering page of this submission. List all the names of the group members on the cover page. • Meeting deadlines fall under the code of ethics. So make the timely submissions. Grades will be deducted for late submission. Question 1: Eastern Electric (EE) is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its applications from Westview Motors, located near Dallas. EE currently purchases 120,000 motors each year from Westview at a price of $120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages about 10 pounds in weight, and EE has traditionally purchased lots of 3,000 motors. Westview ships each EE order within a day of receiving it. At its assembly plant, EE carries a safety inventory equal to 50 percent of the average demand for motors during the delivery lead time. The plant manager at EE has received several proposals for transportation and must decide on one to accept. The details of various proposals are provided in the table below (one cwt = 100 pounds): COLLEGE OF ENGINEERING AND ARCHITECTURE Industrial Engineering Department IEG 413 HW3 Shipments by rail require a five-day transit time, whereas shipments by truck have a transit time of three days. If EE’s annual cost of holding inventory is 25 percent, what should the plant manager do? Question 2: Consider a software company selling a single product. Based on historical data, management estimates that the relationship between demand, d, and price, p, can be represented by the linear function d = 2000 – 3p. From the list of price choices p = $100, $200, $300, $400, $500, find the optimal price that maximizes the revenue. Question 3: GreenTech, a manufacturer of solar panels, has historically purchased solar cells from a local supplier called Reliable Solar. Reliable Solar charges $2.50 per solar cell. The purchasing manager has recently discovered another potential supplier named Precision Solar, offering the same solar cells at a price of $2.40 per cell. Reliable Solar has an average lead time of 4 weeks and delivers solar cells in batches of 1,500. Based on historical data, the purchasing manager estimates that the lead time has a standard deviation of 1.5 weeks. Precision Solar has an average lead time of 3 weeks with a standard deviation of 2.5 weeks. Precision Solar requires a minimum batch size of 3,000 solar cells. GreenTech has a holding cost rate of 18 percent. They currently use a continuous review policy for managing inventory and aim for a cycle service level of 92 percent. Weekly demand has a mean of 800 solar cells with a standard deviation of 200 cells. The purchasing manager needs to determine which supplier to choose. COLLEGE OF ENGINEERING AND ARCHITECTURE Industrial Engineering Department IEG 413 HW3 Question 4: In a supply chain that includes two companies; a retailer who faces customer demand for shoes and a manufacturer who produces and sells shoes to the retailer. Demand for shoes follows the following pattern: The retailer pricing and costing information is as follows: – During the winter season, a shoe is sold to customers at $100 per unit. – The wholesale price paid by the retailer to the manufacturer is $70 per unit. – Any shoe not sold during the winter season is sold to a discount store for $10. For the manufacturer, we have the following information: – Fixed production cost is $100,000. – The variable production cost per unit equals $25. Suppose that the manufacturer offers to buy unsold shoes from the retailer for $40. How much should the retailer order from the manufacturer.
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