SCM 352 Final Study Guide Solutions
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Jan 9, 2024
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SCM 352 Final Exam Study
Guide
Inventory Management
Discussion Questions:
1.
What are the functions of inventory?
2.
What is the purpose of the ABC classification system?
3.
Identify and explain the types of costs that are involved in an inventory system.
4.
Explain the major assumptions of the basic EOQ model.
5.
Explain why it is necessary to include product cost (price or price times quantity) in the
quantity discount model, but not in the basic EOQ model.
6.
What is “safety stock”?
Problems:
1.
The Warren W. Fisher Computer Corporation purchases 8,000 transistors each year as
components in computers. The unit cost of each transistor is $10 and the cost of carrying
one transistor in inventory for a year is $3. Ordering cost is $30 per order.
Assuming that Fisher operates on a 200-day working year, compute:
a)
The optimal order quantity
b)
The expected number of orders placed each year
c)
The expected time between orders
See Solved Problem 12.2 in Chapter 12 in the textbook (p.518)
2.
Annual Demand for notebook binders at Meyer’s Stationary Shop is 10,000 units. Brad
Meyer operates his business 300 days per year and finds that deliveries from his supplied
generally take 5 working days. Calculate the reorder point for the notebook binders.
See Solved Problem 12.3 in Chapter 12 in the textbook (p.518)
3.
Chris Beehner Electronics stocks toy remote control flying drones. Recently, the store has
been offered a quantity discount schedule for these drones. The quantity schedule is
shown in the table below. Furthermore, setup cost is $200 per order, annual demand is
5,200 units, and annual inventory carrying charge as a percent of cost,
I
, is 28%. What
order quantity will minimize the total inventory cost?
Quantity Discount Schedule
PRICE RANGE
QUANTITY ORDERED
PRICE PER UNIT
Initial price
0 to 119
$100
Discount price 1
120 to 1,499
$98
Discount price 2
1,500 and over
$96
See Example 9 in Chapter 12 in the textbook (p.506)
Simulation Modeling
Discussion Questions:
What is simulation modeling and what are business applications of simulation modeling?
Why use simulation modeling?
What are the advantages and disadvantages of simulation modeling?
Who developed Monte Carlo Simulation?
What is the theory behind the Monte Carlo Simulation?
What are the steps in Monte Carlo Simulation?
Problems:
Apple store in Reno sells MacAir computers. Daily demand for this particular product is
relatively low, but subject to some variability. Over the past 300 days, the store manager
observed the sales shown in the table on the right. The manager wants to simulate demand for the
next 10 days using Monte Carlo method. The following 10 random numbers were drawn:
06, 63, 57, 94, 52, 69, 32, 30, 48, 88
Solution:
Simulated Demand:
Random Number
Simulated Demand
06
1
63
3
57
3
94
5
52
3
69
3
32
2
30
2
48
3
88
4
Total
29
= 0*0.05 + 1* 0.1 + 2* 0.2 + 3*0.4 + 4*0.15 + 5* 0.1 = 0.1 + 0.4 + 1.2 + 0.6 + 0.5 = 2.8
= Total demand / # of days = 29/10 = 2.9 computers
Average
demand
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Decision-Making Tools
Discussion Questions:
1.
Identify the six steps in the decision process.
2.
Discuss the difference between decision making under certainty, risk, and uncertainty.
3.
What is a decision tree?
4.
How is the expected monetary value (EMV) calculated? What does it mean?
5.
What is the expected value of perfect information (EVPI)?
6.
What is the expected value with perfect information (EVwPI)?
7.
Why is the maximax strategy considered to be a strategy of an optimist?
8.
Why is the maximin strategy considered to be a strategy of a pessimist?
Problems:
1.
Stella Yan Hua is considering the possibility of opening a small dress shop on California
Avenue, a few blocks from the university. She has located a good mall that attracts
students. Her options are to open a small ship, a medium-sized shop, or no shop at all.
The market for a dress shop can be good, average, or bad. If the market is good and she
opens a small shop, her net profit would be $75,000. If the market is average and she
opens a small shop, her net profit would be $25,000. If the market is bad and she opens a
small shop, her net loss would be $40.000. If the market is good and she opens a
medium-sized shop, her net profit would be $100,000. If the market is average and she
opens a medium-sized shop, her net profit would be $35,000. If the market is bad and she
opens a medium-sized shop, her net loss would be $60,000. If she decides to open no
shop, then her gain/loss would be zero regardless of the market conditions.
a)
Construct a decision table.
b)
What would you recommend her to do if she were to pursue a strategy of an optimist?
c)
What would you recommend her to do if she were to pursue a strategy of a pessimist?
d)
What would you recommend her to do if she were risk neutral?
e)
Suppose, you learn that the probability of a good market was 0.2, the probability of an
average market was 0.5, and the probability of a bad market was 0.3. What would you
recommend her to do now?
f)
A friend of yours who is majoring in marketing offers to sell Stella perfect
information about the future market conditions. She is asking $10,000 for this
information. Should Stella purchase it?
Solution:
a)
States of Nature
Alternatives
Good Market
Average Market
Bad Market
Small Shop
$75,000
$25,000
-$40,000
Medium-sized shop
$100,000
$35,000
-$60,000
No shop
0
0
0
b)
Medium-sized shop
c)
No shop
d)
Medium-sized shop
e)
EMV
small shop
= 0.2(75,000) + (0.5)(25,000) + 0.3(-40,000) = $15,500
EMV
medium shop
= 0.2(100,000) + (0.5)(35,000) + 0.3(-60,000) = $19,500
EMV
no shop
= 0.2(0) + (0.5)(0) + 0.3(0) = $0
Therefore, the best decision is to build a medium-sized shop.
f)
EVwPI = 0.2(100,000) + (0.5)(35,000) + 0.3(0) = $37,500
EVPI = 37,500 – 19,500 = $18,000 (this is more than $10,000, so Stella should
purchase the perfect information.)