Average demand,  = 120 newspapers/day.

120
Standard deviation,  = 15 newspapers. 15
Distribution of demand- Normal distribution.
Newspaper selling price- $1.25. 1.25
Newspaper purchase cost- $ 0.70. 0.7
Newspaper salvage value- $ 0.30. 0.3

Cost of shortage (Cs) 0.55 Selling price - purchase cost

Cost of overage (Co) 0.4 Purchase cost - salvage value

Optimal Service level = Cs / (Cs+Co)

Optimal Service level 0.579
Z value 0.20
The Optimal stock level 123 X = Mean + Z*standard deviation
TO achieve 57.9% service level, the paper boy should buy 123 newspapers everyday

The stockout risk = 1 - Service level

Stockout risk 0.42
ard deviation
 Month
Jan
Feb
Mar
Apr
May
Jun
Total

Total cost of each strategy?

a) Constant workforce or Level production
b) Constant workforce + Subcontracting
c) Chase strategy by varying the workforce
Cost information
Inventory carrying cost $ 5 per unit per month 5
Subcontracting cost per unit $20 per unit 20
Average pay rate $10 per hour ($80 per day) 10
Overtime pay rate $17 per hour (above 8 hours/ day) 17
Labor-hours to produce a unit 1.6 hours per unit (= 5 units/day) 1.6
Cost of increasing daily production rate (hiring and training) 300
Cost of decreasing daily production rate (layoffs) 600

Solution Plan 1: Constant workforce, level production

Month
Jan
Feb
Mar
Apr
May
Jun

Average requirement = Total expeceted demand / Number of production days

Plan 2: Constant workforce + Subcontracting

Production at 38 units per day
In-house production
Workers per day

Subcontract units
Regular time labour
Sub contracting
Total cost

Plan 3: Chase strategy

Month
Jan
Feb
Mar
Apr
May
Jun

Comparision of 3 plans
Cost
Inventory Carrying
Regular labour
Overtime labour
Hiring
Layoffs
Subcontracting
Total cost

Plan 2 workforce with subcontracting is lowest cost op

 Expected Demand Production Days Production
900 22
700 18
800 21
1200 21
1500 22
1100 20
6200 124

80
8
5
per unit
per unit

nstant workforce, level production

Expected Demand, a Production Days, b Demand per day a/b Production at 50 units per day
900 22 40.9090909090909 1100
700 18 38.8888888888889 900
800 21 38.0952380952381 1050
1200 21 57.1428571428571 1050
1500 22 68.1818181818182 1100
1100 20 55 1000
6200 124

Average requirement 50
Workforce required to produce 50 units per day 10

Inventory carrying cost 9250

Regular time labour 99200
Total cost 108450

nstant workforce + Subcontracting

at 38 units per day 38
4712
 7.6

1488
75392
29760
105152

ase strategy
Expected Demand, a Production Days, b Demand per day a/b Basic production cost
900 22 41 14400
700 18 39 11200
800 21 38 12800
1200 21 57 19200
1500 22 68 24000
1100 20 55 17600
6200 124 99200

on of 3 plans
Plan 1 Plan 2 Plan 3
9250 0 0
99200 75392 99200
0 0 0
0 0 9026
0 0 9597
0 29760 0
108450 105152 117823.376623377

kforce with subcontracting is lowest cost option

Monthly inventory change Endign Inventory change
200 200
200 400
250 650
-150 500
-400 100
-100 0
1850
Increase/decrease in demand Extra cost of increasing production

-2
-1
19 5714
11 3312
-13
9025.97402597403
Extra cost of decreasing production Total cost
14400
1212 12412.12
476 13276.19
24914.29
27311.69
7909 25509.09
9597.4025974026 117823.4
Week 1 2 3 4 5
Gross requirements 35 30 40 0 10
Scheduled reciepts
Projected on hand 35
Net requirements
Planned order receipts
planned order releases

Cost information
Holding cost 1 dollar per week
Ordering cost 100 dollars
Delivery lead time 1 week

find Cost of
1. Lot for Lot
2. Economic order quantity (EOQ)
3. Periodic Order Quantity(POQ)

Solution
1. Lot for Lot

Week 1 2 3 4 5
Gross requirements 35 30 40 0 10
Scheduled reciepts
Projected on hand 35 35 0 0 0 0
Net requirements 0 30 40 0 10
Planned order receipts 30 40 0 10
planned order releases 30 40 0 10 40

7 times order has been placed

Total holding cost 0

Total ordering cost 700
Total cost 700

2. EOQ lot size

Number of units ordered 73
Week 1 2 3 4 5
Gross requirements 35 30 40 0 10
Scheduled reciepts
Projected on hand 35 35 0 43 3 3
Net requirements 0 30 0 0 7
Planned order receipts 73 73
planned order releases 73 73

Inventory carried 375

4 times order has been placed
Total holding cost 375
Total ordering cost 400
Total cost 775

Q = sqrt((2*D*S)/H
Number of weeks in a year 52
Annual Demand (D) 1404
Ordering cost (S) 100
Holding cost (H) 52
EOQ 73.48 Units

3. POQ
Week 1 2 3 4 5
Gross requirements 35 30 40 0 10
Scheduled reciepts
Projected on hand 35 35 0 40 0 0
Net requirements 0 30 0 0 10
Planned order receipts 70 0 0 80
planned order releases 70 80

3 times ordered
Average weekly gross requ 27
POQ interval = EOQ/Avg Weekly Gross requirements
POQ Interval 3 Weeks

Total holding cost 195

Total ordering cost 300
Total cost 495

Lot size summary

Setup Holding Total

Lot for Lot 700 0 700
EOQ 400 375 775
POQ 300 195 495

From the above observations POQ is low cost

 6 7 8 9 10
40 30 0 30 55

6 7 8 9 10
40 30 0 30 55

0 0 0 0 0
40 30 0 30 55
40 30 0 30 55
30 0 30 55

6 7 8 9 10
40 30 0 30 55 270

66 26 69 69 39
0 4 0 0 16
 73 73
73 73

6 7 8 9 10
40 30 0 30 55 270

70 30 0 0 55
0 0 0 30 0
0 0 0 85 0
85
Job Job work time Job Due date (days)
A 6 8
B 2 6
C 8 18
D 3 15
E 9 23

Apply FCFS, SPT, EDD, LPT

1. First come first served

FCFS sequence A-B-C-D-E

Job Job work time Job Due date (days) Flow time Job lateness
A 6 8 6 0
B 2 6 8 2
C 8 18 16 0
D 3 15 19 4
E 9 23 28 5
28 70 77 11

Average completion time 15.4 days

Utilization metric 36.36%
Average number of job in t 2.75 jobs
Average job lateness 2.2 days

2. Shortest Processing Time (SPT)

SPT Sequence
Job Job work time Job Due date (days) Flow time Job lateness
B 2 6 2 0
D 3 15 5 0
A 6 8 11 3
C 8 18 19 1
E 9 23 28 5
28 70 65 9

Average completion time 13 days

Utilization metric 43.08%
Average number of job in t 2.32 jobs
Average job lateness 1.8 days

3. Earliest due date (EDD)

Job Job work time Job Due date (days) Flow time Job lateness
B 2 6 2 0
A 6 8 8 0
D 3 15 11 0
C 8 18 19 1
E 9 23 28 5
28 70 68 6

Average completion time 13.6 days

Utilization metric 41.18%
Average number of job in t 2.43 jobs
Average job lateness 1.2 days

4. Longest processing time (LPT)

Job Job work time Job Due date (days) Flow time Job lateness
E 9 23 9 0
C 8 18 17 0
A 6 8 23 15
D 3 15 26 11
B 2 6 28 22
28 70 103 48

Average completion time 20.6 days

Utilization metric 27.18%
Average number of job in t 3.68 jobs
Average job lateness 9.6 days

Rule Average completUtilization metric Avg. no. of jobs Average lateness

FCFS 15.4 36.36% 2.75 2.2
SPT 13 43.08% 2.32 1.8
EDD 13.6 41.18% 2.43 1.2
LPT 20.6 27.18% 3.68 9.6

No one sequencing rule excels on all criteria

1. SPT (Shortest Processing Time) does well on minimizing average completion time,
Utilization and Average number of jobs in system. However, it moves long jobs to the end
which may result in dissatisfied customers.
2. FCFS (First Come First Served) does not do well on any criteria but is perceived as fair by
customers.
3. EDD (Earliest Due date) minimizes average lateness. Good when due dates have been
committed.
Average completion time = Sum of total flow time / Number of Jobs
Utilization metric = Total Job work time / sum of total flow time
Average number of job in the system = Total flow time / Total job work time
Average job lateness = Total late days / Number of Jobs

Average completion time = Sum of total flow time / Number of Jobs

Utilization metric = Total Job work time / sum of total flow time
Average number of job in the system = Total flow time / Total job work time
Average job lateness = Total late days / Number of Jobs
 Average completion time = Sum of total flow time / Number of Jobs
Utilization metric = Total Job work time / sum of total flow time
Average number of job in the system = Total flow time / Total job work time
Average job lateness = Total late days / Number of Jobs

Average completion time = Sum of total flow time / Number of Jobs

Utilization metric = Total Job work time / sum of total flow time
Average number of job in the system = Total flow time / Total job work time
Average job lateness = Total late days / Number of Jobs

ed as fair by
Critical ratio is an index number found by dividing
the time remaining until the due date by the work
time remaining on the job.

Job Due Date Workdays remaining

A 30 4
B 28 5
C 27 2
Current day 25
Solution

Job Due Date Workdays remaining Critical Ratio Priority

A 30 4 1.25 3
B 28 5 0.6 1 Rank based on the critical ratio
C 27 2 1 2

With CR < 1, Job B is late.

With CR = 1, Job C is on schedule.
With CR > 1, Job A has slack time.
ed on the critical ratio