StayFresh, a manufacturer of refrigerators in India

 

BAIS 633 Final Exam Part 2

Workout Problems

 

 

Q1: Select one from the following problems (10 points)

 

Option 1: StayFresh, a manufacturer of refrigerators in India, has two plants –one in Mumbai and the other in Chennai. Each plant has an annual capacity of 300,000 units. The two plants serve the entire country, which is divided into four regional markets: The north, with a demand of 100,000 units; the west, with a demand of 150,000 units; the south, with a demand of 150,000 units; and the east, with a demand of 100,000 units. Two other potential sites for plants include Delhi and Kolkata. The variable production and transport costs (in thousands of rupees) per refrigerator from each potential production site to each market are as shown in the following table.

 

	North	East	West	South
Chennai	30	19	17	15
Delhi	15	18	17	20
Kolkata	18	15	20	19
Mumbai	17	20	15	17

 

1. How should StayFresh plan its production and transportation network?

 

1. StayFresh is anticipating a compounded growth in demand of 50 percent for the next years and must plan its network investment decisions. Demand is expected to stabilize afterwards. Capacity can be added to any site, in either 150,000 or 300,000 units. Adding 150,000 units of capacity incurs an annualized cost of 150 million rupees, whereas adding 300,000 units of capacity incurs an annualized cost of 230 million rupees. Assume that StayFresh plans to meet all demand (not demand is lost). Where should they build the new production capacity? How should they plan the production and transportation network?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option 2: Blue Computers, a major server manufacturer in the U.S., currently has plants in Kentucky and Pennsylvania. The Kentucky plant has a capacity of 1 million units a year, and the Pennsylvania plant has a capacity of 1.5 million units per year. The firm divides the U.S. into five markets: northeast, southeast, Midwest, south, and west. Each server sells for $1,000. The firm anticipates a 50% growth in demand (in each region) this year and wants to build a plant with a capacity of 1.5 million units per year to accommodate the growth. Potential sites being considered are in North Carolina and California.

 

Variable Production and Shipping Costs for Blue Computers ($ per unit)

	Northeast	Southeast	Midwest	South	West	Annual Fixed Cost (million $)
Kentucky	195	180	175	175	200	150
Pennsylvania	170	190	180	200	220	200
N. Carolina	180	180	185	185	215	150
California	220	220	195	195	175	150
Demand (in 1000 units)	700	400	400	300	600

 

Optimize the Blue Computers production and shipping network. Where should they build their new plant?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2: (10 points)

 

Crunchy, a cereal manufacturer, has dedicated a plant for one major retail chain. Sales at the retail chain average about 20,000 boxes a month and production at the plant keeps pace with this average demand. Each box of cereal costs Crunchy $3 and is sold to the retailer at a wholesale price of $5. Both Crunchy and the retailer use holding cost of 20%. For each order placed, the retailer incurs an ordering cost of $210 per order placed. Crunchy incurs the cost of transportation and loading that totals $1000 per order shipped.

 

1. Given that it is trying to minimize its ordering and holding cost, what lot size will the retailer ask for in each order? What are the annual ordering cost and holding cost for the retailer as a result of this policy?

 

 

 

2. What is the annual ordering and holding cost for Crunchy as a result of this policy? What is the total inventory cost across both parties as a result of this policy?

 

 

 

 

3. Now assuming the inventory decisions are centralized, what lot size minimizes the inventory costs (ordering, delivery and holding) across both Crunchy and the retailer? How much reduction in cost relative to (4) results from this policy?

 

 

 

 

4. Discuss how Crunchy can persuade the retailer to place the optimal ordering quantity to minimize the supply chain inventory cost.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3: Select one from the following problems (10 points)

 

Option 1: Croma is an Indian retail for consumer electronics. The company currently has 25 stores located in major metro areas. Weekly demand for smartphones at each store is normally distributed, with a mean of 300 and a standard deviation of 300. The supplier currently takes four weeks to fulfill a replenishment order, which is placed separately by each store. Croma is targeting a CSL of 95% and monitors its inventory continuously.

How much safety inventory of smartphones should Croma carry at each retail store? What is the total safety inventory carried by Croma?

 

Croma is considering moving smartphones to the online channel, where they would be stocked in a single national warehouse. Assume that Croma can move smartphones to the online channel without losing demand (the online demand is the sum of demand at each retail store). How much saving in safety inventory can Croma expect from going online if demand across stores is independent?  How much saving in safety inventory can Croma expect from going online if demand across stores has a correlation coefficient of r=0.5?

 

 

 

 

 

 

 

 

 

 

 

 

Option 2: Magazine Luiza is a Brazilian retail chain for consumer electronics. The company currently has 100 stores distributed across Brazil. It also operates an online channel. It is considering introduction of a new printer and must decide whether to offer it at retail store or the online channel. Weekly demand for the printer at each store has been forecast to be normally distributed with a man of 100 and a standard deviation of 80. The company has also forecast that the demand at the online channel would be the sum of demand across all 100 stores. The supplier will take four weeks to fulfill a replenishment order, whether placed separately by each store or by the online DC. Magazine Luiza is targeting a CSL of 95% and monitors its inventory on a continuous basis. How much safety inventory will the firm carry if the printer is carried at all 100 stores? How much safety inventory will the firm carry if the printer is carried online only and demand across stores is independent? How much safety inventory will the firm carry if the printer is carried online only and demand across stores has a correlation coefficient of  r= 0.3?