Grasshopper Inc. manufactures tablets and is considering whether to use a common processor for its two most popular product lines, G8S and G8X. One A5 processor is used to make one G8S tablet which has a mean demand of 300 units/week and standard deviation of 140 units/week. One A6 processor is used to make one G8X tablet which has a mean demand of 500 units/week and standard deviation of 400 units/week. The replenishment lead time for both processors is 3 week(s). Assume Grasshopper reviews its inventory continuously.

a) Compute the safety stock required for A5 processors and for A6 processors if Grasshopper wants to maintain a 95% service level for each.

b) Recently, Grasshopper's supplier introduced a new processor, B1 which could be integrated with both tablet designs. The replenishment lead time for B1 is also 3 week(s). Grasshopper wants to continue to maintain a 95% service level. Compute the safety stock that would be needed if Grasshopper decides to use the B1 processor in both tablets.

c) The annual holding cost for all types of processors is $54/unit/year. Calculate the annual savings in safety stock holding cost if Grasshopper decides to use the B1 processor for both tablets instead of using separate processors.

d) The unit procurement costs for A5, A6, and B1 are $70, $68, and $69, respectively. Assuming that a work year has 52 weeks, compute the increase in procurement costs if Grasshopper decides to use B1 processor for both tablets.

e) Compare the increase in procurement cost with the savings in part (c) and make a recommendation regarding which processor type(s) to use.

Switching to B1 processors will increase or decrease total annual costs (holding + procurement)? Answer

By how much? Enter the absolute value of the difference in the total annual costs (holding + procurement) for the two options: