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448 CHAPTER 10 INVENTORY MODELS

production time is estimated to be E50 per hour, and 5 Include the following in the policies of parts 4(a)
a full eight-hour shift will be needed to set up the and 4(b):
equipment for producing the part.
a. optimal quantity Q.*
Managerial Report b. number of order or production runs per year.
Develop a report for management of Wagner Fab- c. cycle time.
ricating that will address the question of whether d. reorder point.
the company should continue to purchase the e. amount of safety stock.
part from the supplier or begin to produce the
f. expected maximum inventory.
part itself. Include the following factors in your
report: g. average inventory.
h. annual holding cost.
1 An analysis of the holding costs, including the
appropriate annual holding cost rate. i. annual ordering cost.
2 An analysis of ordering costs, including the j. annual cost of the units purchased or
appropriate cost per order from the supplier. manufactured.
3 An analysis of setup costs for the production k. total annual cost of the purchase policy and
operation. the total annual cost of the production policy.
4 A development of the inventory policy for the 6 Make a recommendation as to whether the
following two alternatives: company should purchase or manufacture the
a. ordering a fixed quantity Q from the supplier. part. What savings are associated with your
recommendation compared with the other
b. ordering a fixed quantity Q from in-plant
alternative?
production.

CASE PROBLEM 2 River City Fire Department

he River City Fire Department (RCFD) fights fires Determining the number of firefighters to be
T and provides a variety of rescue operations in assigned to each unit includes the 186 firefighters
the River City metropolitan area. The RCFD staffs 13 who must be on duty plus the number of firefighters
ladder companies, 26 pumper companies and sev- in the unit who are off for a Kelley day. Furthermore,
eral rescue units. Normal staffing requires 186 fire- each unit needs additional staffing to cover firefighter
fighters to be on duty every day. absences due to injury, sick leave, vacations or per-
RCFD is organized with three firefighting units. sonal time. This additional staffing involves finding
Each unit works a full 24-hour day and then has the best mix of adding full-time firefighters to each
two days (48 hours) off. For example, Unit 1 unit and the selective use of overtime. If the number
covers Monday, Unit 2 covers Tuesday and Unit of absences on a particular day brings the number
3 covers Wednesday. Then Unit 1 returns on of available firefighters below the required 186, fire-
Thursday and so on. Over a three-week (21-day) fighters who are currently off (e.g., on a Kelley day)
scheduling period, each unit will be scheduled must be scheduled to work overtime. Overtime is
for seven days. On a rotational basis, firefighters compensated at 1.55 times the regular pay rate.
within each unit are given one of the seven regularly Analysis of the records maintained over the last
scheduled days off. This day off is referred to as a several years concerning the number of daily absen-
Kelley day. Thus, over a three-week scheduling ces shows a normal probability distribution. A mean
period, each firefighter in a unit works six of the of 20 and a standard deviation of 5 provides a good
seven scheduled unit days and gets one Kelley approximation of the probability distribution for the
day off. number of daily absences.

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