1.

Yum and Yee Food Truck (5 points) The Yum and Yee food truck near the business school serves
customers during lunch hour by taking orders and making fresh batches of stir fry. Customers have only
one choice during the lunch hour, since the objective is to maximize the number of customers served.
Assume that each customer places just one lunch order, and all lunch orders are the same size one unit
of stir-fry.
The stir fry cooking works in this manner. First, a batch of orders is cooked in a wok by one person. The
cooking depends upon the number of orders in the batch. The time to cook just one order is 3 minutes.
For each additional order in the batch, it takes 0.5 minutes more to cook. Thus, cooking two orders in a
batch takes 3.5minutes, cooking three orders takes 4 minutes, and so on.
The other activity is bagging and accepting payments (done by a separate person), which takes 0.80
minutes per order.
a. If Yum and Yee operates with batch sizes of 8 units, what is their process capacity (in orders per
minute)?
b. Calculate the batch size (in orders) that will maximize the overall flow rate (assume there is ample
demand)? Do NOT round the batch size (i.e., assume for this calculation that a non-integer batch size is
possible).

2. Organic Soap Co. (15 points) Sarahs Organic Soap Company makes four kinds of organic liquid soap-
regular, lavender, citrus and tea tree. Demand for the four scents are 150, 120, 75 and 50 kgs
per hour respectively. Sarahs production process can produce any soap at the rate of 450 kgs per hour
but 1.5 hours are needed to switch between scents. During those switchover times, the process doesnt
produce any soap. Sarah wants to choose a production schedule that (i) cycles repeatedly through the
four scents, (ii) meets the required demand and (iii) minimizes the amount of inventory held.
a. How many kgs of regular should Sarah produce before switching over to another scent?
b. Sarah needs to purchase organic Palm oil to make her soaps. She needs 1,000 kgs of Palm oil per day
on average. The supplier delivers immediately and charges a $60 delivery fee per order (which is
independent of the order size) and $4.75 per kg. Sarahs annual holding cost is 25%. Assume 52 weeks
per year and 5 days per week. If Sarah wants to minimize inventory holding and ordering costs, how
much Palm oil should she purchase with each order (in kgs)?
c. If Sarah purchased the EOQ per order, what would be her average inventory holding and delivery fees
per day (in $s)? (Note, do NOT include her purchasing costs per day.)
d. Sarahs supplier is willing to sell her Palm oil at a 5% discount if she purchases 10,000 kgs at a time. If
she were to purchase 10000 kgs per order, what would be her average inventory holding and delivery
fees per day (in $s)? (Note, do NOT include her purchasing costs per day.)
e. Should Sarah order 10,000 units at the 5% discount or order the original EOQ (i.e. without the
discount)? (Hint: Compare the total costs in each case, that is, the sum of purchase, deliver, and average
holding costs.)
3. Pooling Distribution (15 points) A manufacturer (called manufacturer A) is reviewing its stocking and
replenishment policy for a commodity component used for the production of lawn mowers. A single unit
of the component is used for each lawn mower, and the average production rate is of 30 lawn mowers
per day. (The manufacturing plant is open 365 days per year.) Components are shipped to the
manufacturer in a truck, and each time an order is placed it costs the manufacturer $240 to place the
order (as long as the quantity purchased is lower than the trucks capacity of 600 units). It costs about
$20 to hold a unit of a component in stock for one year.
a. Calculate the EOQ that the manufacturer should use for ordering components. (Round up to the
nearest integer.)
b. How often will the manufacturer receive an order? (Round to the nearest integer.)
c. [Note: Less-than-truckload shipment refers to the case where the shipment quantity is less than the
capacity of a standardized truck.]
Because of the manufacturers current ordering needs, components are delivered in LTL (less-than-
truckload) shipments. Manufacturer A is contemplating initiating a pool distribution agreement with
another manufacturer (called manufacturer B) located in the same industrial park. In other words,
these manufacturers agree to order and manage inventory together to meet their combined demand.
Manufacturer B buys components from the same supplier and its plant is also open 365 days per year.
However, manufacturer B uses these components at an average rate of 10 components per day. It incurs
the same holding cost as manufacturer A and because it places orders with the same supplier, it also
incurs $240 to place an order.
What is the EOQ for the pool distribution agreement? If they split the fixed ordering cost and the
quantity received in each shipment in proportion to their demands, how much will manufacturer A save
on average in inventory and ordering costs?
4. Lead Time (15 points) [Note: Delivery lead time is equal to the time elapsed between when an order is
placed and when this order is delivered.]
Suppose you own a business and want to determine an ordering strategy to meet average demand of R
units/day. You decide to assume zero delivery lead time because your supplier is located very close to
your store (consistent with the modelling framework on slide 18 of the lecture). You order the EOQ of
Qas soon as your inventory reaches zero (recall the saw tooth pattern). The time between your orders
is Q/ days.
Your supplier has now relocated and the lead time is days but is less than the TBO with zero lead time.
Suppose this information is revealed to you immediately upon receiving the last order with zero lead
time. Take this to be day zero.
Assume that your supplier retains the original delivery cost structure to keep his customer base and you
continue to order Q.
a. Given the new lead time of l days, in how many days from day zero will you place the next order so
that you do not run out of inventory? (Hints: It may help to draw an inventory diagram similar to the one
on slide 9 of the lecture. It may also be useful to answer this part for specific Q , R, and l values, say Q
= 70, R = 10 units per day and l = 3 days, and then translate your logic into symbols).
b. Is the time between orders in your new ordering strategy different compared to the zero lead time
case?
c. Do you think ordering Q is optimal in the new setting? Explain. (Im not expecting formulas or
anything technical. Explain your intuition.)