1. EOQ Model: Answer the following questions on the EOQ model.
- Explain, in your own words, what you understand by the term “robustness of the EOQ model”. Alternatively, answer what is the EOQ model robust against and what does “error in parameter estimation” mean? [5 marks]
- Quantitatively argue why EOQ model is robust? [5 marks]
- The EOQ model assumed a constant per-unit cost of purchasing a product. How will volume discount impact your EOQ calculation? [5 marks]
2.Periodic Review. Located in central France, Laurence Garreau’s firm supplies a particular sub-assembly to the automobile industry. These sub-assemblies need an electric motor, and Laurence is trying to find a supplier for these motors. Laurence has received two quotations. The first is from a firm in Asia. The unit price per motor is 60 Euro. The transit time from Asia is 25 days. The second quotation is from a company in North America. This firm offers to price the motors at 65 Euro /unit. It will take only 15 days to deliver the motors. Assume that the firm works 7 days a week 50 weeks per year, and the daily requirement of the motors is normally distributed with a mean of 100 units and a standard deviation of 30 units. Laurence intends to hold safety stock to meet a 97% service level. The annual holding cost of the motor is 25% of the price of the motor. Also, by convention, the French firm pays for the motors the moment they are shipped. All motors are ordered every Monday (no other days are possible). It costs him 150 Euros to place the order. Evaluate each of the two proposals to determine which is the most economical alternative. What is your recommendation? (Be specific and show all of your calculations.) [10 marks]
|1. The answer is clearly articulated. 2. Displays excellent understanding of the EOQ model
|1. The answer explains EOQ model but not its robustness features 2. Displays good understanding of EOQ model
|1. The answer paraphrases the class notes in explaining EOQ and robustness 2. Does not display good understanding of EOQ model
|The answer can clearly connect quantitative argument to the idea
|The answer can quite clearly connect quantitative argument to the idea
|The answer can not use or connect quantitative argument to the idea
|The answer can clearly illustrate all the relevant changes in analysis brought by change in the assumption
|The answer can illustrate most of the changes in analysis brought by the change in the assumption
|The answer can not clearly illustrate most of the changes in the analysis brought by the change in the assumption.
|1. The answer captures all the relevant cost/profit terms 2. Can calculate all the relevant cost/profit terms
|1. The answer captures most of the relevant cost/profit terms 2. Can calculate most of the relevant cost/profit terms
|1. The answer does not capture most of the cost/profit terms 2. Can not calculate most of the relevant cost/profit terms
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