Question

3. HB Bookstore is currently located in Eyup. Nowadays, the owner is considering to open another branch in Beyazit. Suppose that the bookstore has $40 ordering cost and the lead-time is currently one week and will be same for the second location if it is opened. The owner states that there is a S0.30 weekly holding cost per item. Based on the market surveys the following demand forecasts are made for the following 6 weeks if the owner decides to open the second branch Week 1Week 2 Week 3Week 4 Week 5 10 20 Location Week 6 12 20 10 20 Be 30 30 20 It is also determined that if HB decides not to open the second branch, than 10% of the demand of the Eyup branch will be lost because of the inconvenience of the current location. The accountant of the bookstore says that HB makes $2 profit for each book it sells. If the second branch is opened, both branches will have independent inventory management. They are both going to utilize the current inventory policy, which is ordering units whenever R units are left and will target current 97% service level. Assume that the demand is normally distributed. What is the demand forecast of HB's Eyup location if the owner decides not to open the Beyazit branch? a. b. Determine the (R,Q) parameters for HB's Eyup branch if the second branch is not opened. c. Determine the average weekly inventory cost and average weekly ordering cost for HB's Eyup branch if the second branch is not opened. Determine the (R,Q) parameters for both of the branches if the second branch is opened. Determine the average weekly inventory cost and average weekly ordering cost for both of the branches if the second branch is opened. Do you think HB should open the new branch? Why? d. e. f.

Answer 1

HB Bookstore
Location	Week 1	Week 2	Week 3	Week 4	Week 5	Week 6
Eyup	10	12	14	12	10	8
Beyazit	20	20	30	30	20	20
a. if HB decides not to open the second branch, 10% of the demand of the Eyup branch will be lost
demand forecast for HB's EYUP location:
Location	Week 1	Week 2	Week 3	Week 4	Week 5	Week 6
Eyup	9	11	13	11	9	7
(rounding off)
b. EOQ, Q=sqrt(2*Co*D/Cc)
Annual Demand, D	515	(assuming 52 weeks in a year)
Ordering Cost, Co	$           40
Carrying Cost, Cc	$        0.30
EOQ, Q=	371	units
Reorder Point, R = d*L+z*?d*?L
Lead Time, L	1	week
Average Weekly demand, d	10	units
service level	0.97
z	1.88
std dev of demand, ?d	1.89
Reorder Point, R =	13	units
c. total ordering cost= (D/Q)*Co	$     55.58
average weekly ordering cost	$        1.07	(assuming 52 weeks in a year)
total carrying cost = (Q/2)*Cc	$     55.58
average weekly carrying cost	$        1.07	(assuming 52 weeks in a year)
d. if second branch is opened:
Location	Week 1	Week 2	Week 3	Week 4	Week 5	Week 6
Eyup	10	12	14	12	10	8
Beyazit	20	20	30	30	20	20
Eyup:
Average weekly demand, d	11	units
Annual Demand, D	572	(assuming 52 weeks in a year)
Ordering Cost, Co	$           40
Carrying Cost, Cc	$        0.30
EOQ, Q=	391	units
Lead time, L	1	week
Average Weekly demand, d	11	units
service level	0.97
z	1.88
std dev of demand, ?d	2.10
Reorder Point, R =	15	units
Beyazit:
Average weekly demand, d	23	units
Annual Demand, D	1213	(assuming 52 weeks in a year)
Ordering Cost, Co	$           40
Carrying Cost, Cc	$        0.30
EOQ, Q=	569	units
Lead time, L	1	week
Average Weekly demand, d	23	units
service level	0.97
z	1.88
std dev of demand, ?d	5.16
Reorder Point, R =	33	units

Formulae used:

1 HBBookstore 3 Location 4 Eyup 5 Beyazit Week 1 10 20 Week 2 12 20 Week 3 Week 4 Week5 Week 6 30 30 20 20 7 a. if HB decides not to open the second branch, 10% of the demand of the Eyup branch will be lost 9 demand forecast for HB's EYUP location: 10 Location 11 Eyup 12 (rounding off) Week 2 C40.9 Week 1 Week3 Week4 Week5 Week 6 04 0.9 E4 0.9-F4 0.9-G4 0.9 B4 0.9 15 16 Annual Demand, D 17 Ordering Cost, Co 18 Carrying Cost, Co 19 EOQ,O- 20 21 Reorder Point,Rsd'L+2ơd'sL 22 LeadTime, L 23 Average Weekly demand, d 24 service level 25 26 std dev of demand,ơd 27 Reorder Point, R 28 29 c. total ordering cost (DIOr'Co 30 average weekly ordering cost 31 32 total carrying cost (Q12)"Co 33 average weekly carrying cost (SUM(B11:G11)16 52 (assming 52weeks in a year) 0.3 SORT(2 B17 B161B18) units week units AVERAGEIB11:G11 0.97 STDEVIB11G11) 823 B22+B25 B26'SORTIB22) units (B161B191 B17 829152 (assming 52 weeks in ayear) (B19/2) B18 832152 lassming 52 weeks in ayear)

35 d. if secondbranch is opened 36 Location 37 Eyup 38 Beyazit Week 1 Week 2 Week3 Week4 Week 5 Week 6 30 20 20 40 Eyup: 41 Average weekly demand, d 42 Annual Demand, D 43 Ordering Cost, Co 44 Carrying Cost, Co AVERAGE(B37:G37) B41 52 40 0.3 SORTI2 B43 B421B44) (assming 52 weeks in a year) 46 47 Leadtime, L 48 Average Weekly demand, d 49 service level week B41 0.97 NORMSINVIB49) STDEVIB37:G37) B48 B47+BSO B5T SQRT(B47) units 51 std dev of demand, ơd 52 Reorder Point, R 54 Beyazit 55 Average weekly demand, d 56 Annual Demand, D 57 Ordeing Cost, Co 58 Carrying Cost, Co 59 EOQ,0 AVERAGE(B38:G38) -855 52 (assming 52 weeks in a year) 0.3 61 Leadtime,L 62 Average Weekly demand, d 63 service level week B55 0.97 NORMSINVIB63) SIDEVE38: G38) B62 B61+B64 B65 SORT(B61) units 65 std dev0f demand,ơd 66 Reorder Point, R 67