O’Brien Chemicals makes three types of products:

industrial cleaning, chemical treatment, and some miscellaneous products. Each is sold in 55-gallon drums. The selling price and unit manufacturing cost are shown below:

Manufacturing Product Type Selling Price/drum Cost/drum Industrial Cleaning Alkaline Cleaner $700.00 $275.00 Acid Cleaner $600.00 $225.00 Neutral Cleaner $450.00 $150.00 Chemical Treatment Iron Phosphate $920.00 $400.00 Zirconium $1,350.00 $525.00 Zinc Phosphate $1,400.00 $625.00 Other Sealant $850.00 $350.00 Rust Prevention $600.00 $260.00 Fixed costs are assumed normal with a mean of

$5 million and a standard deviation of $20,000.

Demands are all assumed to be normally distributed with the following means and standard deviations:

Product Type Mean Demand Standard Deviation Industrial Cleaning Alkaline Cleaner 5,000 100 Acid Cleaner 2,000 500 Neutral Cleaner 5,000 350 Chemical Treatment Iron Phosphate 5,500 250 Zirconium 2,800 130 Zinc Phosphate 4,350 300 Other Sealant 8,000 350 Rust Prevention 4,250 250 The operations manager has to determine the quantity to produce in the face of uncertain demand.

One option is to simply produce the mean demand;

depending on the actual demand, this could result in a shortage (lost sales) or excess inventory. Two other options are to produce at a level equal to either 75%

or 90% of the demand (i.e., find the value so that 75%

or 90% of the area under the normal distribution is to the left). Using Monte Carlo simulation, evaluate and compare these three policies and write a report to the operations manager summarizing your findings.