Help with Operations Management Homework!?

Posted on 2014-04-25 11:17:00 in Operations Management by NITORUS

Robert Gates rounds the corner of the street corner when he sees his wife prunes roses in their front yard. He slowly pulls his car into the driveway, turns off the engine, and falls into his wife's open arms.

How was your day? she asks.

Great! The drugstore business could not be better! Robert replies, Except for the traffic coming home from work! That traffic can drive a sane man crazy! I am tense right now. I think I will go inside and make myself a relaxing martini.

Robert enters the house and walks directly into the kitchen. He sees the mail on the kitchen counter and begins flipping through the various bills and advertisement until he comes across the new issue of Operations Management Today. He prepares his drink, grabs the magazine, treads into the living room, and settles comfortably into his recliner. He has all that he wants except for one thing. He sees the remote control lying on the side of the television. He sets his drink and magazine on the coffee table and reaches for the remote control. Now, with the remote control in one hand, the magazine in the other, and the drink on the table near him, Robert is finally the master of his domain.

Robert turns on the television and flips the channels until he finds the local news. He then opens the magazine and begins reading an article about scientific inventory management. Occasionally he glances at the television to learn the latest in business, weather, and sports.

As Robert delves into the article, he becomes distracted by a commercial on television about toothbrushes. His pulse quickens slightly in fear because the commercial for Totalee toothbrushes reminds him of the dentist. The commercial concludes that the customer should by a Totallee toothbrush because the toothbrush is Totallee revolutionary and Totalee effective. It certainly is effective; it is the most popular toothbrush on the market!

At that moment, with the inventory article and toothbrush commercial fresh in his mind, Robert experiences a flash of brilliance. He knows how to control the inventory of Totalee toothbrushes at Nightingale Drugstore!

As the inventory control manager at Nightingale Drugstore, Robert has been experiencing problems keeping Totalle toothbrushes in stock.

He has discovered that customers are very loyal to the Totalee brand name since Totalee holds a patent on the toothbrush endorsed by 9 out of 10 dentists. Customers are willing to wait for the toothbrushes to arrive at Nightingale Drugstore since the drugstore sells the toothbrush for 20 percent less than other local stores. This demand for the toothbrushes at Nightingale means that the drugstore is often out of Totalee toothrbrushes at Nightingale Drugstore. The store is able to receive a shipment of toothbrushes several hours after an order is placed to the Totalee regional warehouse because the warehouse is only 20 miles away from the store. Nevertheless, the current inventory situation causes problems because numerous emergency orders cost the store unnecessary time and paperwork and because customers become disgruntled when they must return to the store later in the day.

Robert now knows a way to prevent the inventory problems through scientific inventory management! He grabs his coat and car keys and rushes out of the house.As he runs to the car, his wife yells, Honey, where are you going?

I'm sorry darling, Robert yells back, I have just discovered a way to control the inventory of a critical item at the drugstore. I am really excited because I am able to apply my business degree to my job! I need to get the data from the store and work out the new inventory policy! I will be back before dineer!

Because rush hour traffic has dissipated, the drive to the drugstore takes Robert no time at all. He unlocks the darkened store and heads directly to his office where he rummages through file cabinets to find demand and cost data for Totalee toothbrushes over the past year.

Aha! Just as he suspected! The demand data for the toothbrushes is almost constant across the months. Whether in winter or summer, customers have teeth to brush, and they need toothbrushes. Since toothbrush will wear out after a few months of use, customers will always return to buy another toothbrush. The demand data shows that Nightingale Drugstore customers purchase an average of 250 Totalee toothbrushes per month (30 days).

After examining the demand data, Robert investigates the cost data. Because Nightingale Drugstore is such a good customer, Totalee charges its lowest wholesale price of only $1.25 per toothbrush. Robert spends about 20 minutes to place each order with Totalee. His salary and benefits add up to $18.75 per hour. The annual holding cost for the inventory is 12 percent of the capital tied up in the inventory of Totalee toothbrush.

(a) Robert decides to create an inventory policy that normally fulfills all demand since he believes that stock-outs are just not worth the hassle of cal

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