Decision1:

Enteringin50thdaywechangedthecontracttono.3.Asrankingofteamwasbased
oncashinhandsoouronlytargettomaximizerevenue.Onseeingthatdailyaverage
jobleadtimeonday50was0.59wewouldget$1025foreachordercompletedwhich
wasstillbetterthaneitherofcontract1or2.Itturnedoutbegoodideaupuntilday52
becauseno.arrivalofordersreducedandinturnreducedaverageleadtime,thus
maximizingrevenue.
AnalysisOnhowtochoosecontracts(usinglinearrelationshipbetweenrevenue
andleadtime)
Contract3Revenue($1250$1000)foraverageleadtime(0.5dayorless0.6day)
and($1000$750)foraverageleadtime(0.6day0.7day)Revenue($750$0)for
averageleadtime(0.7day1dayormore).
Contract2Revenue($1000$750)foraverageleadtime(1dayorless1.25days)
andrevenue($750$0)foraverageleadtime(1.25days2daysormore).
Contract3Revenue(750$$0)foraverageleadtime(7days14daysormore).
Decision2:
Onday53asarrivalrateofordersincreasedto20weincreasedno.ofmachinesto4
anddecreasedorderquantityto1800kitsi.e.for30orders.Asutilizationofstation1
machineswas100percent,averageleadtimeincreasedto0.88dayqueueatstation1
increasingwefelttheneedof1moremachineatstation1.
Itturnedouttobeagooddecisionofreducingorderquantitytobuynewmachine
(duetoshortageofcashinhand$118,000)forreducingaverageleadtime.Wehad
justreceivedorderedquantityofinventoryfor80ordersanddidnotneedtoorderfor
further3days.3dayslaterwewouldhaveenoughcashtoreorderrequiredamountof
inventory.
AnalysisforrequiredreorderpointandreorderQuantity:
Averagearrivalrateoforderstillday5012.22jobs
Standarddeviationofordersreceivedtillday502.98
Leadtime4days
ReorderQuantity=(Avg.orderperday)X(leadtime)+(SafetyStock)
SafetyStock=(zvaluefor99percentavailability2.33)X(deviationofordersfor
leadtimeperiod5.58)
ReorderQuantity2932=780=3712kits=61batches
For4daysweneedapprox.3000kitsi.e.for50orders.
Revenuegeneratedin3days=$1100(avg.revenueperorderonday53)x12.22x
=$40326,whichisenoughtoorder4000kitsi.e.for66orders.
Decision3:
Onday55wechangedcontracttono.1seeingthattheaveragedailyleadtimerising
consistently.Weregretitnotdoingearlieronday55whenaveragedailyleadtime

was0.88.Wethoughtthatbuyingextramachineatstation1wouldreducethelead
time.Whatitdidwastoclearthequeueatstation1andbuildupqueueatstation3.It
wasaclosetussleforincreasingquantityofmachinebetweenstation3and1due
thembeingutilizedatfullcapacityfrequently.Weregretonmakingourdecision
basedonsharpriseinqueue.
Analysis:onwhichmachinetobuy
Infirst50days
Station1wasatfullutilizationfor14daysandStation3for18days.
Sincenodataonprocesstimeofmachinesisgivenitisnotpossibletocalculateexact
capacityofstations.So,weconcentrateonfirsttimestationutilizationgotreduced
frommaximumi.e.1.
Atstation1queuereducedfrom300to42onday10whenatday9itwasworkingat
maximumcapacity=(30042)=258orders/day.
Atstation3queuereducedfrom309to31onday10whenatday9itwasworkingat
maximumcapacity=178/day.
Thereforeafterfirst50daysforgivencombinationofmachinesatdifferentstations
thebottleneckwasatstation3ratherthan1.

Decision4:
Lossofrevenues:
Failuretochangereorderquantitybackto4800kitsafterpurchasingmachineat
station1leftusshortofinventoryforday65today72.Also,wewerelefttomanage
queueofstation3and1inordertoreduceleadtime.Also,withlowno.ofordersper
daywemadebatchsizeof2x30andwithhighno.ofordersabatchsizeof1x60.
Analysis:onhowdodamagecontrolthatcomeswithwrongdecision
Firstofallwerevertedbacktocontract1fromday55tomaintainasteadyflowof
$(750x12.22)=$9165dailyrevenueuptoday114whenweswitchedtocontract3on
purchaseofmachineatstation3.
Wesufferedalossof$(250x12.22x58)=$171,100.
Next,wemadeorderquantityashighasourcashonhandwouldpermitatreorder
pointof3000kitssothatnolossofrevenueisincurredduetoshortageofinventory.
Wealsoincreasedreorderpointto4000kitstocoveranyirregularitiesinarrivalrates
oforderduringleadtimeofreceivinginventory.Itcouldhandleaverageof=(4000/
(60x4))=16orders/day.
Aswehad4machinesatstation1andonly1atstation3thereforebatchof2x30only
reducedleadtimeofstation1byfullyutilizingall4machines.Butatstation32
batchesof30tookmoretimethan1batchof60asitincludedonemoresetuptime.
Thusdecisionof2x30backfiredatthisjunctureincreasingqueueat3rdstationto1800
ordersthuswehadtosetstation2topriority4insteadofFIFO.Also,overalllead
timewasstillabove1.25duetowhichwecouldnotswitchto2ndcontract.

Decision5:
Wepurchased1moremachineatstation3onday114,switchedoperationstoFIFO
andmovedtocontract3.Purchasing1moremachineatstation2shiftedbottleneck
backtostation1aswestilldidntgetdataonfullcapacityofstation2.Decisionof
shiftingtocontract3provedrightatrarelydidaverageleadtimeperjobrosebeyond
0.5day.Also,thequeueatstationsdidnotbuildupmuchundernormalcircumstances
sothatwehavetoanalyzeonprioritybetweenstep2orstep4atstation2.
Analysis:
CapacityofStation2(4machines)datatakenfromdecision2analysis
3machinecapacity=258jobs/day.
4machinecapacity=345jobs/day.
Capacityofstation3(2machines):376jobs/day
(*Thesenumbersarejustindicativeforcomparisonpurposeandnotexactcapacity.)
Decision6:
ReorderQuantityChangedto500batches,i.e.30000kitsforoptimizingbetween
reorderingcostandinterestrevenueoncashinhand.
Analysis:
Q*=SQRT(2DS/H)=SQRT(2*12*365*1,000/66.31)=363batches
WhereD=annualdemand=12*365
S=fixedcostperorder=$1,000,and
H=thehandlingcosts=$60x(1+.10/365)365=66.31
Decision7:
Purchasedonemoremachineatstation1onday240aswewerenotabletomanage
revenueconstantat$1250perdaybyjustalteringlotsizebetween(2X30)and(1X60)
duetoincreaseinarrivaloforderratebeyond14.
Totalmachineatstation1=5.Thisprovedtherightdecisionaseventhehighestno.
ofordersperdayi.e.22couldbehandledwitheaseandaveragerevenuelosswas
minimizedto$25perdayfromday240today386.
Avg.lossofrevenueperdayfromday114to240=$118
Totalrevenuelossperday=$(118x12.22)=$1442
Costofnewmachine=$90,000
Breakevenin=90000/1442=63dayswhichisgreaterthanno.ofdaysremainingi.e.
246.
Decidingagainstonemoremachineatstation1:
Costofnewmachine=$90,000
Dailyrevenueloss=$(25x12.22)=$305
Daystobreakeven=90000/305=295dayswhichismorethanno.ofdaysleftinthe
gamei.e.(486240)=246days.

Decision8:ExitStrategy
Sinceourrevenuewasconstantandpredictedorderarrivalratewastobeonsimilar
linesasbefore,weneednotworryaboutleadtimeandpurchasingofadditional
machines.So,weconcentratedonminimizingleftoverinventorycostafterday486.
So,weordered1120batchesofinventory.Thisprovedsuccessfulaswehadonly69
batchesofinventorythatwouldhavelastedfor5moredays.
Analysis:
Averagearrivalrateofjobsonday378=11.8andS.D.=2.76
For100days
Inventoryrequired=100x11.8=1180batchesor70800kits.
SafetyStock:Standarddeviationxzvaluefor99%availability(2.33)=64batchesor
3860kits
Wehad4800kitsleft(i.e.reorderpointwasseton4800)
Henceweneededtoorder=(70800+38604800)=69860kits
Weorderedalittlelessasweexpectednotmorethan50%deviation.