Reference no: EM133563214

Case Study: The CQ-EMBA Coffee Shop is a small coffee shop with branches only in Ithaca and Kingston. They serve hungry EMBA students as well as other townspeople who happen to drop in their stores. The coffee shop carries Gimme!'s freshly roasted coffee. The Kingston branch has the coffee shipped over from Ithaca. There is a fixed fee of $30 for each shipment of coffee. Gimme! charges the coffee shop $12/pound for the coffee and the coffee shop uses a 20% interest rate for holding cost. The Kingston branch uses 20 pounds of coffee per day with a standard deviation of 4 pounds per day. The lead time for new coffee to arrive to the Kingston branch once it is ordered is 4 days. Since the EMBA students cannot live without coffee, the coffee shop would like to maintain a service level of 99.9%.

Question a) Currently, the coffee shop orders 200 pounds of coffee when the amount of coffee in inventory goes down to 100 pounds. What is the annual fixed ordering cost and holding cost if they continue to use this policy?

Question b) Under the current policy, what is the average time spent by a pound of coffee at the Kingston branch?

Question c) One of the EMBA students suggested that the coffee shop can improve its inventory policy by using an optimal order quantity and reorder point. Compute the optimal order quantity and reorder point the coffee shop should use.

Question d) The Ithaca branch also sells fresh raisin bagels. They have found the number of raisin bagels demanded by their customers per day is uniform between 1 and 50 per day (i.e., they are equally likely to sell any number of bagels between 1 and 50). It costs 35 cents to make a raisin bagel and a raisin bagel is sold for $1.00. Any bagels not sold the day they are made are discounted to 20 cents, and sold as "day-old" bagels. Assume that the demand for day-old bagels is separate from the demand for fresh bagels and that all day-old bagels are always sold. How many raisin bagels should the coffee shop make each morning?