Now Scarlett has all of the information necessary to perform between the time an order is placed and the time the order is her inventory analysis for part 10003487! delivered is increased to 0.95? (b) What is the inventory policy that American Acrospace should (e) Do you think Scarlett's independent analysis of cach station- ary part could generate inaccurate inventory policies? Why or (e) What are the average annual holding costs and setup costs use () Scarlett knows that the aerospace industry is very cyclicalthe why not? sociated with this inventory policy? industry experiences several years of high sales, several years (d) How do the average annual holding costs and setup costs of mediocre sales, and several years of low sales. How would change if the desired probability that a shortage will not occur you recommend incorporating this fact into the analysis? Scarlett Windermere cautiously approaches the expansive As Scarlett walks through the security door, she feels gray factory building and experiences a mixture of fear and as though she has entered another world. Machines twice excitement. The first day of a new consulting assignment al- the size of humans line the aisles as far as the eye can see. ways leaves her fighting conflicting emotions. She takes a These monsters make high-pitched squeals or low, horrify- deep breath, clutches her briefcase, and marches into the ing rumbles as they cut and grind metal. Surrounding these small, stuffy reception area of American Aerospace. machines are shelves piled with metal pieces. Scarlett Windermere here to see Bryan Zimmerman," As Bryan leads Scarlett down the aisles of the factory, he she says to the bored security guard behind the reception desk. yells to her over the machines, As you well know from the The security guard eyes Scarlett suspiciously and says, proposal stage of this project, this factory produces the sta- Ya don't belong here, do ya? Of course ya don't. Then ya tionary parts for the military jet engines American Aerospace gotta fill out this paperwork for a temporary security pass. sells. Most people think the aerospace industry is real high- As Scarlett completes the necessary paperwork, Bryan tech. Well, not this factory. This factory is as dirty as they exits through the heavy door leading to the factory floor and come. Jet engines are made out of a lot of solid metal parts, enters the reception area. His eyes roam the reception area and this factory cuts, grinds, and welds those parts." and rest upon Scarlett. He approaches Scarlett booming, So This factory produces over 200 different stationary you must be the inventory expert-Scarlett Windermere. So parts for jet engines. Each jet engine model requires differ- glad to finally meet you face to face! They already got you ent parts. And each part requires different raw materials. pouring out your life story, huh? Well, there will be enough Hence, the factory's current inventory problem. time for that. Right now, let's get you back to the factory "We hold all kinds of raw materialsfrom rivets to steel floor to help me solve my inventory problem!" sheetshere on the factory floor, and we currently mis- And with that, Bryan stuffs a pair of safety glasses in manage our raw materials inventory. We order enough raw Scarlett's right hand, stuffs the incomplete security forms in materials to produce a year's worth of some stationary parts, her left hand, and hustles her through the heavy security door. but only enough raw materials to produce a week's worth June 18 22 40 19 38 21 25 36 28 27 of others. We waste a ton of money stocking raw materials past year. She types another command to generate the fol- that are not needed and lose a ton of money dealing with lowing printout of the monthly orders for the MX332. late deliveries of orders. We need you to tell us how to con- trol the inventory-how many raw materials we need to Month Number of MX332 ordered stock for each part, how often we need to order additional raw materials, and how many we should order." 25 As she walks down the aisle, Scarlett studies the shelves July 31 and shelves of inventory. She has quite a mission to ac- August September complish in this factory! October Bryan continues, "Let me tell you how we receive or- November ders for this factory. Whenever the American Aerospace sales December department gets an order for a particular jet engine, the or- January February der is transferred to its assembly plant here on the site. The March assembly plant then submits an order to this factory here for April 34 the stationary parts required to assemble the engine. Unfor- May tunately, because this factory is frequently running out of raw June materials, it takes us an average of a month between the time we receive an order and the time we deliver the finished or- She enters the monthly order quantities for the MX332 into der to the assembly plant. The finished order includes all the a computerized statistical program to estimate the underly- stationary parts needed to assemble that particular jet engine. ing distribution. She learns that the orders roughly follow a BUTand that's a big butthe delivery time really depends normal distribution. It appears to Scarlett that the number of upon which stationary parts are included in the order." orders in a particular month does not depend on the num- Scarlett interrupts Bryan and says, "Then I guess now ber of orders in the previous or following months. would be as good a time as any to start collecting the de- tails of the orders and solving your inventory problem!" (a) What is the sample mean and sample variance of the set of Bryan smiles and says, "That's the attitude I like to monthly orders for the MX332? seechomping at the bit to solve the problem! Well, I'll Scarlett next researches the most time-intensive stationary part show you to your computer. We just had another consulting required to assemble the MX332. She types a command into firm complete a data warehouse started by American Aero- the computer to generate a list of parts required to assemble space three years ago, so you can access any of the data you the MX332. She then types a command to list the average de need right from your desktop!" And with a flurry, Bryan livery time for each part . She learns that part 10003487 typi- heads back down the aisle. cally requires the longest time to complete, and that this part Scarlett realizes that the inventory system is quite com- is only used for the MX332. She investigates the pattern for plicated. She remembers a golden rule from her consulting the part further and learns that over the past year, part 10003487 firm: break down a complex system into simple parts. She has taken an average of one month to complete once an order therefore decides to analyze the control of inventory for each is placed. She also learns that the factory can produce the part stationary part independently. But with 200 different sta- almost immediately if all the necessary raw materials for the tionary parts, where should she begin? production process are on hand. So the completion time actu- She remembers that when the assembly plant receives ally depends on how long it takes to obtain these raw materi- an order for a particular jet engine, it places an order with als from the supplier. On those unusual occasions when all the the factory for the stationary parts required to assemble the raw materials already are available in inventory, the comple- engine. The factory delivers an order to the assembly planttion time for the part is essentially zero. But typically the com- when all stationary parts for that order have been com- pletion time is 12 months. pleted. The stationary part that takes the longest to com- Scarlett performs further analysis on the computer and plete in a given order therefore determines the delivery date learns that each MX332 jet engine requires two parts num- of the order bered 10003487. Each part 10003487 accepts one solid steel Scarlett decides to begin her analysis with the most part molded into a cylindrical shape as its main raw material time-intensive stationary part required to assemble the most input. The data show that several times the delivery of all the popular jet engine. She types a command into the computer stationary parts for the MX332 to the assembly plant got de- to determine the most popular jet engine. She learns that the layed for up to 1 months only because a part 10003487 was MX332 has received the largest number of orders over the not completed. And why wasn't it completed? The factory had run out of those steel parts and had to wait for another that inventory management appears to be completely out of shipment from its supplier! It takes the supplier 1 months to whack. The only good news is that there is no significant ad- produce and deliver the steel parts after receiving an order ministrative cost associated with placing an order for the steel from the factory. Once an order of steel parts arrives, the fac- parts with the supplier. tory quickly sets up and executes a production run to use all After Scarlett has finished her work on the computer, the steel parts for producing parts 10003487. Apparently the she heads to Bryan's office to obtain the financials needed production problems in the factory are mainly due to the in- to complete her analysis. A short meeting with Bryan yields ventory management for those unassuming steel parts. And the following financial information. 55,800 $750 per part per year Setup cost for a production run to produce part 10003487 Holding cost for machine part 10003487 Shortage cost for part 10003487 (includes outsourcing cost, cost of production delay, and cost of the loss of future orders) Desired probability that a shortage for machine part 10003487 will not occur between the time an order for the steel parts is placed and the time the order is delivered $3,250 per part per year 0.85 Now Scarlett has all of the information necessary to perform between the time an order is placed and the time the order is her inventory analysis for part 10003487! delivered is increased to 0.95? (b) What is the inventory policy that American Acrospace should (e) Do you think Scarlett's independent analysis of cach station- ary part could generate inaccurate inventory policies? Why or (e) What are the average annual holding costs and setup costs use () Scarlett knows that the aerospace industry is very cyclicalthe why not? sociated with this inventory policy? industry experiences several years of high sales, several years (d) How do the average annual holding costs and setup costs of mediocre sales, and several years of low sales. How would change if the desired probability that a shortage will not occur you recommend incorporating this fact into the analysis? Scarlett Windermere cautiously approaches the expansive As Scarlett walks through the security door, she feels gray factory building and experiences a mixture of fear and as though she has entered another world. Machines twice excitement. The first day of a new consulting assignment al- the size of humans line the aisles as far as the eye can see. ways leaves her fighting conflicting emotions. She takes a These monsters make high-pitched squeals or low, horrify- deep breath, clutches her briefcase, and marches into the ing rumbles as they cut and grind metal. Surrounding these small, stuffy reception area of American Aerospace. machines are shelves piled with metal pieces. Scarlett Windermere here to see Bryan Zimmerman," As Bryan leads Scarlett down the aisles of the factory, he she says to the bored security guard behind the reception desk. yells to her over the machines, As you well know from the The security guard eyes Scarlett suspiciously and says, proposal stage of this project, this factory produces the sta- Ya don't belong here, do ya? Of course ya don't. Then ya tionary parts for the military jet engines American Aerospace gotta fill out this paperwork for a temporary security pass. sells. Most people think the aerospace industry is real high- As Scarlett completes the necessary paperwork, Bryan tech. Well, not this factory. This factory is as dirty as they exits through the heavy door leading to the factory floor and come. Jet engines are made out of a lot of solid metal parts, enters the reception area. His eyes roam the reception area and this factory cuts, grinds, and welds those parts." and rest upon Scarlett. He approaches Scarlett booming, So This factory produces over 200 different stationary you must be the inventory expert-Scarlett Windermere. So parts for jet engines. Each jet engine model requires differ- glad to finally meet you face to face! They already got you ent parts. And each part requires different raw materials. pouring out your life story, huh? Well, there will be enough Hence, the factory's current inventory problem. time for that. Right now, let's get you back to the factory "We hold all kinds of raw materialsfrom rivets to steel floor to help me solve my inventory problem!" sheetshere on the factory floor, and we currently mis- And with that, Bryan stuffs a pair of safety glasses in manage our raw materials inventory. We order enough raw Scarlett's right hand, stuffs the incomplete security forms in materials to produce a year's worth of some stationary parts, her left hand, and hustles her through the heavy security door. but only enough raw materials to produce a week's worth June 18 22 40 19 38 21 25 36 28 27 of others. We waste a ton of money stocking raw materials past year. She types another command to generate the fol- that are not needed and lose a ton of money dealing with lowing printout of the monthly orders for the MX332. late deliveries of orders. We need you to tell us how to con- trol the inventory-how many raw materials we need to Month Number of MX332 ordered stock for each part, how often we need to order additional raw materials, and how many we should order." 25 As she walks down the aisle, Scarlett studies the shelves July 31 and shelves of inventory. She has quite a mission to ac- August September complish in this factory! October Bryan continues, "Let me tell you how we receive or- November ders for this factory. Whenever the American Aerospace sales December department gets an order for a particular jet engine, the or- January February der is transferred to its assembly plant here on the site. The March assembly plant then submits an order to this factory here for April 34 the stationary parts required to assemble the engine. Unfor- May tunately, because this factory is frequently running out of raw June materials, it takes us an average of a month between the time we receive an order and the time we deliver the finished or- She enters the monthly order quantities for the MX332 into der to the assembly plant. The finished order includes all the a computerized statistical program to estimate the underly- stationary parts needed to assemble that particular jet engine. ing distribution. She learns that the orders roughly follow a BUTand that's a big butthe delivery time really depends normal distribution. It appears to Scarlett that the number of upon which stationary parts are included in the order." orders in a particular month does not depend on the num- Scarlett interrupts Bryan and says, "Then I guess now ber of orders in the previous or following months. would be as good a time as any to start collecting the de- tails of the orders and solving your inventory problem!" (a) What is the sample mean and sample variance of the set of Bryan smiles and says, "That's the attitude I like to monthly orders for the MX332? seechomping at the bit to solve the problem! Well, I'll Scarlett next researches the most time-intensive stationary part show you to your computer. We just had another consulting required to assemble the MX332. She types a command into firm complete a data warehouse started by American Aero- the computer to generate a list of parts required to assemble space three years ago, so you can access any of the data you the MX332. She then types a command to list the average de need right from your desktop!" And with a flurry, Bryan livery time for each part . She learns that part 10003487 typi- heads back down the aisle. cally requires the longest time to complete, and that this part Scarlett realizes that the inventory system is quite com- is only used for the MX332. She investigates the pattern for plicated. She remembers a golden rule from her consulting the part further and learns that over the past year, part 10003487 firm: break down a complex system into simple parts. She has taken an average of one month to complete once an order therefore decides to analyze the control of inventory for each is placed. She also learns that the factory can produce the part stationary part independently. But with 200 different sta- almost immediately if all the necessary raw materials for the tionary parts, where should she begin? production process are on hand. So the completion time actu- She remembers that when the assembly plant receives ally depends on how long it takes to obtain these raw materi- an order for a particular jet engine, it places an order with als from the supplier. On those unusual occasions when all the the factory for the stationary parts required to assemble the raw materials already are available in inventory, the comple- engine. The factory delivers an order to the assembly planttion time for the part is essentially zero. But typically the com- when all stationary parts for that order have been com- pletion time is 12 months. pleted. The stationary part that takes the longest to com- Scarlett performs further analysis on the computer and plete in a given order therefore determines the delivery date learns that each MX332 jet engine requires two parts num- of the order bered 10003487. Each part 10003487 accepts one solid steel Scarlett decides to begin her analysis with the most part molded into a cylindrical shape as its main raw material time-intensive stationary part required to assemble the most input. The data show that several times the delivery of all the popular jet engine. She types a command into the computer stationary parts for the MX332 to the assembly plant got de- to determine the most popular jet engine. She learns that the layed for up to 1 months only because a part 10003487 was MX332 has received the largest number of orders over the not completed. And why wasn't it completed? The factory had run out of those steel parts and had to wait for another that inventory management appears to be completely out of shipment from its supplier! It takes the supplier 1 months to whack. The only good news is that there is no significant ad- produce and deliver the steel parts after receiving an order ministrative cost associated with placing an order for the steel from the factory. Once an order of steel parts arrives, the fac- parts with the supplier. tory quickly sets up and executes a production run to use all After Scarlett has finished her work on the computer, the steel parts for producing parts 10003487. Apparently the she heads to Bryan's office to obtain the financials needed production problems in the factory are mainly due to the in- to complete her analysis. A short meeting with Bryan yields ventory management for those unassuming steel parts. And the following financial information. 55,800 $750 per part per year Setup cost for a production run to produce part 10003487 Holding cost for machine part 10003487 Shortage cost for part 10003487 (includes outsourcing cost, cost of production delay, and cost of the loss of future orders) Desired probability that a shortage for machine part 10003487 will not occur between the time an order for the steel parts is placed and the time the order is delivered $3,250 per part per year 0.85