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# Probability and Economic Ordering

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Can you please discuss each of these for me?

1. In cases where demand is difficult to predict, which probability models would you use so that the risk associated with stock out is managed? Briefly describe how each model would be used.

2. You have a business in which you sell very inexpensive items and very expensive items. Would you use a fixed-time period or a fixed-quantity period model to order the expensive items? Explain your decision.

3. If you are in the business of making roller skates, would the wheels needed be dependent or independent on the production levels? Would the demand for roller skates be dependent or independent?

4. Dunstreet's Department Store would like to develop an inventory ordering policy with a 95 percent probability of not stocking out. To illustrate your recommended procedure, use as an example the ordering policy for white percale sheets. Demand for white percale sheets is 5,000 per year. The store is open 365 days per year. Every two weeks inventory is counted and a new order is placed. It takes 10 days for the sheets to be delivered. Standard deviation of demand for the sheets is five per day. There are currently 150 sheets on hand. How many sheets should you order?

5. The question of flexibility within a master production schedule depends on several factors. Unless some operating rules are established and adhered to, the system could become chaotic. What techniques does management use to maintain a reasonably controlled flow through the production system?

6. Assume you are building custom motorcycles. All custom bikes use some standard parts. Part number HD-60 is stocked in your inventory of component parts. Each year you use about 2,000 HD-60 components at a cost of \$25 each. Storage costs, which include insurance and cost of capital, amount to \$5 per unit of average inventory. Every time an order is placed for HD-60 components, it costs \$10.

(a) How many items of HD-60 should be ordered at a time?
(b) What are the annual costs of ordering HD-60 components?
(c) What is the annual cost of storing HD-60 components?

7. Product A is an end item and is made from two units of B and four of C. B is made of three units of D and two of E. C is made of two units of F and two of E. A has a lead-time of one week. B, C, and E have lead times of two weeks, and D and F have lead times of three weeks. Show the bill of materials (product tree structure).

8. Discuss the importance of the master production schedule in an MRP system.

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Discussion

Introduction: Hello, I trust the response to this question will provide sufficient guidance for you to develop a successful response to your class instructor. My response is not expected to provide you with a hand-in ready response, but is expected to provide you with sufficient guidance to aid you in your own research. I will follow your question step-by-step as you laid it out.

Can you please discuss each of these for me?

1. In cases where demand is difficult to predict, which probability models would you use so that the risk associated with stock out is managed? Briefly describe how each model would be used.

The complete list of probability models is probably must longer than you might expect. A key term in this discussion is probability distribution. Under the heading of probability distribution, the list of probability models includes the following: "Fair coin model, unfair coin model, fair die model, and two dice model. These models are performed exactly as their names imply, and probability Models for Equally Likely Outcomes," (Waner, 2009).

The Binomial Distribution: A Probability Model for a Discrete Outcome. This probability distribution applies when the researcher or planner is considering the possibility of two different outcomes. (The binomial distribution: A probability model for a discrete outcome, 2015).

Multinomial probability is different than binomial distribution because the multinomial probability distribution looks at more than two possible outcomes. (Multinomial distribution, 2016).

1. Manual calculation of a multinomial probability distribution is very challenging, so the best approach is to gain access to a probability software program. This would be the approach I would take because I see your problem with multiple possible outcomes that must be considered.

2. You have a business in which you sell very inexpensive items and very expensive items. Would you use a fixed-time period or a fixed-quantity period model to order the expensive items? Explain your decision.

Under the fixed-time period model, the business owner or manager counts the inventory at fixed time intervals. This approach limits ordering of inventory to these time intervals. This plan works best when the business has a sales person visit the business on a regular basis to take orders (Tang, Vasili, Vasili, & Ismail, 2013).

Under the fixed-quantity period model, inventory ...

#### Solution Summary

This response covers a very broad range of questions concerning the manufacturing process decisions. The response covers probability distributions, economic order quantity, and manufacturing production schedules. The response briefly provides the student with sufficient information of develop a very detail response to questions concerning the management of business operations.

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