ISE 513
GEZA BOTTLIK
SPRING 1997
MIDTERM 2
04/03/97
DO YOUR WORK ON THIS HANDOUT. THIS WILL EXPEDITE THE GRADING OF THE
PAPERS. The handout with the solutions will also contain the original questions.
NAME ________________________ SSN _________________________
MIDTERM SCORE _________________________
Read these instructions!!
Please read the problems carefully and provide the information requested and only the
information requested in each question. Use the minimum amount of work required to
answer each question. Show all your work. The test is worth 100 points. (20% of your total
grade).
The test papers are to be handed in no later than 6:30 P.M. or one hour and 15 minutes
after we start, whichever is later. It is unfair to your fellow students who hand in their papers
on time to use more time than they had.
The test is open notes and open book. Use your calculator if needed. No laptops.
If you want to ask a question, come to me and ask me. If you want to borrow your neighbor’s
calculator, ask me to do it for you. No talking to your neighbors.
Remember, each of these problems is relatively short, do not consider involved, long
solutions. Move on to the next problem if you are stuck.
Good luck, I hope you all do well.
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ISE 513
GEZA BOTTLIK
SPRING 1997
MIDTERM 2
04/03/97
Problem No. 1
Our organization handles 3000 different products. We have an accurate system for tracking the
levels of our inventory. Our customers expect a very high service level and are likely to go
elsewhere permanently if we do not satisfy their demand. The demand and other data are given
below for a typical product.
Monthly demand last year = 200,190,205,198,210,205,212,197,188,186,200,195
Lead time from vendor = 2 weeks; Ordering cost =$100; Unit value=$50, Carrying rate 20%
Size of individual orders averages 10 with a standard deviation of 1.
If you think you need other data, make reasonable assumptions.
a) Choose a method of managing the inventory for this operation and give your reasons for
choosing it. (20 points)
b) Calculate the necessary quantities for the typical product with your chosen method
(10 points)
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ISE 513
GEZA BOTTLIK
SPRING 1997
MIDTERM 2
04/03/97
Problem No. 2
A factory makes numerically controlled machinery. Demand is about 5 per month. Commonly used
parts, such as nuts, bolts, washers, etc. are not carried in the Bill of Materials.
How would you handle these parts in your inventory system? State your reasons. (10 points)
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ISE 513
GEZA BOTTLIK
SPRING 1997
MIDTERM 2
04/03/97
Problem No. 3
We have these data for a product:
Unit value=$150; Ordering cost = $300; Carrying cost = 20%; Annual demand =12,000, with a
variance of 4800. Lead time = 1 month.
There are two service requirements:
1. 95 % probability of no stockouts
2. A 50% fractional charge of the unit value per unit short
a) How would you manage this inventory (be practical!)? Calculate the necessary values. (15
points)
What is the incremental cost for meeting both requirements? (20 points)
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ISE 513
GEZA BOTTLIK
SPRING 1997
MIDTERM 2
04/03/97
Problem No. 4
a) You are the inventory manager of a large distributor and report to the controller. The controller
has some rudimentary knowledge of inventory management, but doesn’t understand the
details. She has recently heard about “simultaneous determination of parameters” and would
like you to try them. Your average annual usage per item is $40000. The total volume is $100M,
the profit $2M and the inventory turnover is 25. What would you tell her? Why? (25 points)
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