Question 1. LaserPed, Inc. is a retailer of bicycles and scooters located in

1. LaserPed, Inc. is a retailer of bicycles and scooters located in Rockville, Maryland. LaserPed procures supplies of bicycles manufactured by Bikes R Us, Inc. located in Chicago, IL via wholesaler, Mobility, Inc of Baltimore, MD. Bikes R Us produces various models of mountain bikes including the “Deluxe A” model (see Figure 1). Bikes R Us produces 10 different bike models and other products. These products are sold throughout the U.S. and Canada. It has wholesalers in most major cities. BikesRUs’ annual sales in 2013 was $ 500 million.

The following table gives LaserPed’s annual sales of “Deluxe A” model for the past nine years (2005-2013). Due to the economic decline it is assumed that sales of Deluxe A in 2014 will remain flat and comparable to 2009- 2013. Figure 2 shows the bike supply chain.

Sales data for Deluxe A:

Fig 1: Model Deluxe A

Fig 2: Supply Chain

Manufacturer Wholesaler Retailer

(Bikes R Us) (Mobility) (LaserPed)

The factory (Bikes R Us) procures all the components and parts from domestic suppliers. Usually the factory, wholesaler, and the retailer work one shift per day and have 250 work days each year with uniform production rate. The bikes are sold to retailers for $ 300.00 per unit and it costs the company $ 200.00 to produce each unit including all labor and overhead.

Ordering cost at LaserPed is estimated to be $ 30 per order and inventory carrying cost (includes space, capital cost) is estimated to be about 25% per year.

As the Operations Manager of LaserPed, you have to find the following:

1. How many Deluxe A bikes should LaserPed order in 2014? [1 point}
2. What should be the optimal lot size for each order (economic order quantity) for this model?
3. How much inventory of Deluxe A bikes will the company (LaserPed) carry in stock on average if they order EOQ? How many orders should LaserPed place annually
4. Find annual (ordering+ inventory carrying) cost?
5. What should be the reorder point if the lead time is 10 days?

2. A recent Business Analyst (GW BBA) hired to streamline supply chain found that LaserPed’s daily demand for bikes actually follows an approximate normal distribution with mean 20 units and standard deviation of 5 units. She negotiated a fixed lead time of 5 days with the wholesaler and wanted to provide a service level of 99%. (z value for 99% is 2.36)

a) Given the above information and data in Problem no. 1 above, would you change your ordering pattern? Why?

b) What would be the new reorder point?

c) What would be the new average inventory?

d) What would be the safety stock?

e) To improve inventory performance, the Business Analyst at LaserPed decided to directly source bikes from the manufacturer (BikesRUs) and link their demand with BikesRUs production plans. BikesRUs can produce bikes at a rate of 400 per day, setup cost is $ 400 per setup, and annual inventory carrying cost is 25% of the cost of bike. The analyst was able to negotiate a lower cost of $ 240 per bike in exchange for long term orders. What would be the economic production quantity? [6 points] What would be the maximum inventory? [2 points] What would be the production run time and total cycle time (time between two successive production runs)?

1. The following table contains information on the cost to run three jobs on four available machines. Determine as assignment plan that will minimize costs. [12 points] What will be the minimum cost?

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