Operations management, 4th yr

Given info. for Coffee Company ABC

- monthly demand follows a normal distribution with mean of 1,000 units and standard deviation of 250 units.

- December, where demand randomly falls between 1,500 2,500 units, is an exception.

- alpha = 95%

- The lead-time when Company ABC places an order with its Asian supplier, until the product arrives at the DC, is 8 weeks. Orders are shipped to individual customers using the services of Speedy Post.

PLAN [A]

Software package that helps you predict monthly demand with the following accuracy:

within 120 units, 8 weeks at a time.

PLAN [B]

Switch from ocean transport to air-shipping in LD6 containers (which can hold up to 250 units). This will reduce the order-to-delivery lead-time from 8 weeks down to 2 weeks.

GIVEN THE INFO. below, would you select PLAN A or PLAN B? CALCULATE THE Aggregate demand and TOTAL INVENTORY COST.

- It takes one week for the supplier to process the order and to make it available for pick-up/shipping. (Hint: the transfer of ownership takes place 1 week after the order has been placed.) - The cost of shipping by ocean is $200 per unit. The cost of shipping by air is $400 per unit.

- Assumed inventory holding cost per year: $750

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