Leading canadian manufacturer of maple syrup

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Reference no: EM132293512

Management at Smokey Kettle, a leading Canadian manufacturer of maple syrup, is trying to control its inventory costs. The weekly cost of holding one “unit” of inventory is $30 (one unit is 1,000 cans of syrup). The marketing department estimates that weekly demand averages 120 units, with a standard deviation of 15 units, and is reasonably well modeled by a normal distribution. If demand exceeds the amount of soap on hand, those sales are lost, that is, there is no backlogging of demand. The production department can produce at one of three levels: 110, 120, or 130 units per week. The cost of changing production from one week to the next is $3,000.

Management would like to evaluate the following production policy. If the current inventory is less than L = 30 units, then produce 130 units in the next week. If the current inventory is greater than U = 80 units, then produce 110 units in the next week. Otherwise, continue at the previous week’s production level. Smokey Kettle currently has 60 units of inventory on hand. Last week’s production level was 120.

Please complete the following in Excel using the SimVoi package and include detailed explanations and screenshots of simulation.

(a) Simulate 52 weeks of operation at Smokey Kettle. Graph the inventory of soap over time. What is the total cost (inventory plus changeover) for the 52 weeks?

(b) Use a simulation of 1,000 trials to estimate the average 52-week cost with values of U ranging from 30 to 80 in increments of 10. Keep L = 30 for every trial.

(c) Calculate the sample mean and standard deviation of the 52-week cost under each of the above policies (different values of U) and construct 95% confidence intervals for the average 52-week cost. What is the best value of U for L = 30? Explain why.

(d) For the best value of U identified above, what are the chances that the total cost will exceed $120,000 in a year?

Reference no: EM132293512

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