3) (40 points) Since the graduation period is coming you started a new business

Question

3) (40 points) Since the graduation period is coming you started a new business of selling Commencement Brochures for the College of Engineering. Talking to the Dean you estimate your demand to be normally distributed with a mean of 300 graduates and standard deviation of = 50 (after all not everyone buys your brochure) Each brochure costs you $10 to print and you sell them for $25. Moreover, brochures not sold are worthless after the commencement ceremony Being a student you do not try to minimize your cost as the usual model suggests! All you want is to satisfy your captive market and provide a Service Level Type 1 of 90%. a) (10 points) What should be your order size Q7 Now given your answer from part (a) what is your Service Level Type lI? Given your answer from part (a) what is the expected number of brochures that you will be b) (15 points) c) (10 points) unable to sell (you will be short)? Now only if you have time: (10 points) d) Changing your mind you would like to achieve Service Level TypeLof 90%. In this case how many brochures should you order?

Explanation / Answer

(a) Now mean number of graduates = 300 and std. dev =50. Given that it s a normal distruction almost 90% of the brochures sold before coomencement period will lie beween mean +- 2*std Dev = 300 +- 100 = 200 to 400 brochures

Assuming that I do not want to reduce cost and just want to satisfy the captive market then my order size should be 400 brochures

(b) Given my answer form part (a) my Service level type II will be 95% as I will want to be 95% confident of selling all my brochures

(c) Given my answer from part (a) the expectednumber of brochures I will able to sell are 300 as the expected value will eaqual the mean and in this case the mean demand is 300.

(d) For service level type II of 90% I will be ordering 3*St.dev. = 450 brochures to ensure that all of the captive market is satisfied

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