What quantity of spares should be ordered

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Reference no: EM13922280

A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution:

Number	0	1	2	3
Probability	.10	.50	.25	.15

If a part fails and a spare is not available, two days will be needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered?

a. Use the ratio method.

b. Use the tabular method (see Table 13.4).

Text Book: Operations Management By Santosh Patnaik.

Reference no: EM13922280

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