Advanced Operations Management
Fall 2005, Professor Eckstein
Homework 5
Due Thursday, November 3
For each problem, either show your work, or hand in both a values and formulas version of
an Excel spreadsheet.
1. Suppose that demand for an item is 3,000 units per year. Demand occurs randomly,
modeled by a Poisson process. It costs $900 to process an order for more stock, the
holding cost is $16 per unit per year, and the cost of “stocking out” is $100 per item.
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The lead time between placing an order and receiving stock is 10 days ( 365
year). Using
the method demonstrated in class, estimate the order quantity and reorder point.
2. For the same problem above, now assume that 10 days is just a “typical” time to receive
more stock. The actual time is random, with the following observed distribution:
Days Probability
8
10%
9
10%
10
50%
11
15%
12
10%
13
5%
Recalculate your estimated reorder point based on this information.
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