Reference no: EM132496247

MSCI103 Introduction to OR and MS Assignment -

Please get demand and the type of model for stock control (EOQ/EPQ/re-oder) with detailed explanation.

EXERCISE - Lunedale Manufacturing has built up a successful business producing and selling two products, widgets and grommets to a large engineering company, Briteng. It is now nearing the end of 2020 and the management of the company is considering the options for 2021. The following is an extract from a meeting between the managing director, Rupert Hall, the marketing director, Lance Black and the finance director, Jean Bright.

RH: How is the widget contract for 2021 coming on?

LB: Briteng have not yet decided how many they want. As you know, we can expect from past experience that the demand will follow a seasonal pattern. Briteng say that they will be ready to specify their requirements for each quarter of 2021 at the end of this year, but for the time being we just have past demand information up to this quarter. [Demand data for the last 5 years is available and information is given in the Appendix.]

RH: Is the situation the same for grommets?

LB: No, Briteng have got their act together on that and the demand for grommets in 2021 is already known and is shown in this table:

RH: What sort of profit will we be making on these products this year?

JB: I've calculated that we should make a profit of £21 for each widget and £28 for each grommet.

RH: Does that take into account all the costs?

JB: Yes it does, except if we produce items in an earlier quarter than they are needed and hold them in stock until they are required, then there is an extra cost incurred of £2 per widget per quarter and £3 per grommet per quarter.

RH: Is that really going to be necessary?

JB: I think it may be needed since we have a limited number of machine hours available each quarter. Each widget requires 5 machine hours and each grommet requires 7 machine hours. In 2021 there will be just 2000 machine hours available in each quarter.

LB: You are forgetting that next year we are converting some of the factory to produce a new product that our research and development group have been working on, the Wallace. That means that there will only be 1000 machine hours available for producing widgets and grommets in the last two quarters of 2021.

RH: Will we be able to meet all the likely demand this year with our current capacity?

JB: I think it may be close; it will depend on the widget demand. If we cannot make all the widgets or grommets that Briteng want, we shall have to buy in the remainder from Manch Manufacturing and supply them to Briteng, but we shall make no profit on any supplied that way. If we have spare capacity, there's no other customer for these widgets and grommets.

RH: Do we have any items already in stock?

JB: No we've run down our stocks of widgets and grommets so that there will be none in stock at the start of 2021. We are not planning to have any in stock at the end of 2021 either.

RH: Before we start planning our production for 2021, I wonder whether we should bring forward the conversion and start supplying Wallaces earlier. If we made the decision now, we could start producing Wallaces from the second quarter of 2021, but we would lose 500 production hours for widgets and grommets in the second quarter of 2021.

LB: How profitable are these Wallaces?

RH: Well I think Jane will bear me out here, that if we go ahead now and convert early to Wallace production from the second quarter of 2021 then we should be able to make an additional profit from the Wallaces of £5000 in 2021.

LB: But your figure of £5000 assumes that there will be substantial demand for Wallaces. I've seen the market research analysis and although the £5000 profit is the most likely outcome from the early conversion, there was a 95% confidence interval of ± £3000 round that figure.

RH: Well I'm not sure exactly what that means, but we need to make a decision on whether to go ahead and convert the factory early in the very near future, before we know the final demand figures for widgets or have more information about demand for Wallaces.

JB: I've got a new graduate in my team - their CV seemed to suggest they could tackle issues like this. I'll get them to write a report to give us some guidance about what to do.

First, submit an abstract not more than 150 words describing your methodology. In this abstract write the method(s) you are going to use and why do you use this/these method(s). Also briefly describe the steps of your solution method.

In the second part of the assignment, submit a short report (no longer than 8 pages) including advice for the managing director. Make clear any assumptions you make, and explore how sensitive your recommendations are to the uncertainty in the situation. Show clearly how you have arrived at your conclusions.

Attachment:- Introduction to OR and MS Assignment File.rar