SUPPLY CHAINL

WERK ZITTING 4 (W23 = spel)

SUPPLY CHAIN LOGISTICS: PRACTICE SESSION 4

Important notes:
1) When looking up a value in a table (e.g. of the standard normal distribution), use linear
interpolation to find the most appropriate result (and round to 4 decimals).

Some refreshing:
If you need the value of 𝑦 that corresponds to a particular value of 𝑥, first find the values 𝑥1
and 𝑥2 that are just smaller and larger than 𝑥 and their corresponding 𝑦 values (𝑦1 and 𝑦2 ). The
𝑦 value corresponding to x can then be found as:
𝑦2 − 𝑦1
𝑦 = 𝑦1 + (𝑥 − 𝑥1 ) ∙ ( )
𝑥2 − 𝑥1

For example, you would like to find the probability that corresponds to a 𝑧-score of 0.73 for the
standard normal distribution (that is: 𝑃(𝑍 ≤ 0.73) with 𝑍 following the standard normal
distribution):
𝑥 = 0.73
𝑥1 = 0.70 → 𝑦1 = 0.75804
𝑥2 = 0.75 → 𝑦2 = 0.77337
This results in a probability of 0.7672.

2) You can assume 1 year = 12 months = 52 weeks = 365 days (unless stated otherwise).

Exercises practice session 4

1. (Ch20.Ex5) Next week, Super Discount Airlines has a flight from New York to Los
Angeles that will be booked to capacity. The airline knows from past history that an average of
25 customers (with a standard deviation of 15) cancel their reservation or do not show for the
flight. Revenue from a ticket on the flight is $125. If the flight is overbooked, the airline has a
policy of getting the customer on the next available flight and giving the person a free round-
trip ticket on a future flight. The cost of this free round-trip ticket averages $250. Super
Discount considers the cost of flying the plane from New York to Los Angeles a sunk cost. By
how many seats should Super Discount overbook the flight?
2. (Ch20.Ex15) Assume the information below for a certain item for which you require an
inventory policy. Note that the item is demanded 50 weeks per year.
Parameter Value
Item cost 10 euro
Order cost 250 euro 200

Annual holding cost 33% of the item cost

Annual demand 25750 units
Average weekly demand 515 units
Standard deviation of weekly demand 25 units
Lead time 1 week

single-period inventary model

 a) Determine the optimal inventory policy in case you wish to have a service probability
of 95%.
b) Given your answer in a), what are the annual holding costs and annual order costs? How
much are the yearly total costs?
c) Suppose you receive a discount of 50 euros on the order cost in case you place orders
of more than 2000 units. Would you change the order quantity found in a)? If yes, how much
could you save on a yearly basis due to this discount?
d) Determine the optimal inventory policy in case you wish to have a service level of 99.5%
(ignore the discount mentioned in c))

3. (Ch20.Ex9) Sofia’s Silk Screening produces specialty T-shirts that are primarily sold at
special events. Sofia is trying to decide how many to produce for an upcoming event. During
the event, Sofia can sell T-shirts for $20 each. However, when the event ends, any unsold T-
shirts are sold for $4 each. It costs Sofia’s $8 to make a specialty T-shirt. The company’s
estimate of demand is the following:

Demand Probability
300 0.05
400 0.1
500 0.4
600 0.3
700 0.1
800 0.05

a. What is the service rate (or optimal fractile)?

b. How many T-shirts should Sofia’s produce for the upcoming event?

4. (Ch20.Ex22) Annual demand for a product is 13,000 units; weekly demand is 250 units
with a standard deviation of 40 units. The cost of placing an order is $100, and the time from
a
ordering to receipt is four weeks. The annual inventory carrying cost is $0.65 per unit. To
provide a 98 percent service probability, what must the reorder point be?
Suppose the production manager is told to reduce the safety stock of this item by 100 units. If
D
this is done, what will the new service probability be?
 ·

making Aanval Seats

M
ans

en undere
·
:

Oef 1 cancelation cancellati ·

ans
analate 20
M
.
S
the : 33 =

volity on:
,

er : ·

ipati 6
aut
·
1 =
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45
-

,
= ⑧
- -
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·
Co = 250 - cast
of concellation 82
15
(= ) 0x =
= 10 , 4 =30*= 19
18
overestimate
Cu
* ·

P -
125
=
0
,
33

(2u 20)(125 + 250)

+

In kan
je ver als opportuniteitshat die je mist es
je
·
2 underestimate
Off .

d
Fixed
Economic order
quantity Model-uncertain ·
2DS
·
Qopt =

H
= 2 25750
.
. 250
= 1975 2253
,
3 3 = 102. 13%
,

R d L + 201 515

radimir
· =
25 1 , 65 25
=
+
.

.
=
556 ,

A
zij
P = 0 95 ...

Annual onder
Purchase cost cost
=
holding Cost

~ -order Annual order Lost

holding
I2
=
d

(
a
-
b +c = D .
C + R .
S + + 2 .
8c .
H
= Annual purchase lost
2
R
Q -
To hoevaak inv .

holding
je ordert LOSo

·
(2 2
L
+
2 .
S .
) .
H =

I 10 +5
+ 1 , 65 .

25) .
3 ,
323395

25750 3459 49423259

8 S
⑳
. =
.
250 =
,

1975

· D .
C = 15750 ·
10 = 257500

yearly voro lost

a
~

=> TC =
Annual Purchase Cost + Annual Order Losr +
Annual holding Cost

=
3395 + 3259 + 257500

= 264154

* D =
probility of having max
.
O concellations
 =
.
2 25750 200
1766 6932
Popt
.

2 ·
= ,

3, 3
= 1767 -D
gaat niet want
S

-2000

·
+c = D c .
+
B .
s +
(2 +
20) .
H

= 25750 .
10 +

50 .
200

+ + 1 , 6525
B

( 3

⑳
i 263511
=

, 4887

Nazo
= 263511

DQ => TC200n -

Thegt5
= 263511 -

264154
=

= 643
=>
Sowing 643

SERVICE LEVEL APPROACH

d

2DS
·
Qopt =

H
= 2 25750
.
. 250
= 1975 2253
,
3 3
,

E(2) = (1 -

P) x Q (1 0
995) 1975
395
-

· ,
0
,
:

= =

61 25

Linear

i n terpol a ti o n:3
·

[][] i
0 00833
=>
y
=

R d L + 202 25 515 2
0 , 00833
=
515
· =
1
.

.
+ .
=
,

tabel Ya 42
E (2) 0 395 + 2 Auste [0 : 0
, 10]
-
.

X2 X1

>
-

&(2) Aullen [0 ,
351
: 0
,
299]
Oef 3 b
. rabel is voor Nog

Optimum zoeken ,
I
·
zoeken waartussen 0 , 75 ligt
-20
-
8

Pro-4
d ⑫ · 0
S
75
75
=
.
o p = 0
G +
·
.

+ 05
05
+
5
10

b ·
500

⑳
40
- ·
Goo

Out
Go
1500 -
300) .
4 . 0, 05 = 40

aay
40 d
80

·
o o 180
& o
⑳ o
120 -D 1700 =
600) .
12 . 0, 1 =
120

⑧
180 ⑳o
120

El = 860 540
b

expected cost

E2500) E2500
*

-- Q Goo produceren

oef .

4
• Annual D = 13000 Units
• Weekly D = 250 units
• Standard dev. = 40 units
• Cost of placing an order = $100
• Leadtime = 4 weeks
• Annual inv. $0, 65/unit

98 %) Average Demand
a Reorder point /Sp =

98 %
=

during leadtime
table bij
=
R = L + 2 .

OL
=
Safety Stock

250 4 + 2 054
=

40
. 4
,
. .

#
=
1164 units

↓ SS1 4 40 100
= 2, 054
-

.
.

= 64 , 32

·
64 32
,
=
62 Zsp .

I 4
. 40 .

Esp
( ) =
Zsp = 0
,
804

(= ) Isp =79 %