LEBANESE AMERICAN

UNIVERSITY
QBA 851 – Fall 2019

Quantitative Methods in Business

Final Project

Submitted on 15.12.2019

By

Stephanie Mesrobian

201402734

Page 1 of 23
 LEBANESE AMERICAN
UNIVERSITY
QBA 851 – Fall 2019

Quantitative Methods in Business

Tuesday, December 10, 2019

Instructions

1- Submission deadline is Tuesday, December 17, 2019, at 11:59 PM

2- Submit one word file via blackboard message
3- Projects submitted to my personal email will not be accepted
4- Solve all problems
5- The word file submitted should include a title page
6- Start each problem on a new page with the statement of the problem
followed by the solution
7- Use POM-QM to perform the calculations
8- Copy and paste the POM-QM input and output of each problem in the
appropriate place within your solution
9- Work individually
10- Plagiarism will not be tolerated
11- Good luck

Page 2 of 23
1. (25 Points) The annual demand for an item is 20000 units and the ordering cost is
$200. The holding cost is $2 per unit per year and the unit purchasing cost is $10.
There are 250 working days per year.
a) Determine the optimal ordering Policy.
b) Determine the optimal order policy if the unit the lead-time is 20 days.
c) Suppose that the current policy is to order exactly 2500 units each time an order is
placed. Find the annual savings if the optimal policy is adopted.

Page 3 of 23
Solution of exercise 1:
a) Determine the optimal ordering Policy.
The output of POM-QM is:

The optimal ordering policy is to order 2000 units every 25 days whenever the inventory
level reaches to zero. This policy results in a minimum inventory cost of 204,000$ per
year.

Page 4 of 23
 b) Determine the optimal order policy if the unit the lead-time is 20 days.
The POM-QM output is:

Q* = 2000 unites
Lead time = 20 days
T = 250 Days
Demand Rate = 20000
Daily Demand Rate = D/T = 20000/250 = 80 units/ day
Reorder point = Lead Time x Daily Demand Rate = 20 x 80 = 1600 units.

Optimal ordering policy is to order 2000 units every lead time or 20 days whenever the
inventory level reaches 1600 (L*D) .
This policy results in a minimum of 204,000$ Inventory cost (same as part a)

Page 5 of 23
 c) Suppose that the current policy is to order exactly 2500 units each time an
order is placed. Find the annual savings if the optimal policy is adopted.
Q = 2500 units
TCU (Q) = CD + CoD/2 + ChQ/2

TCU (2500) = CD + CoD/2 + ChQ/2 = 10 x 20000 + 200 x 20000/ 2500 + 2 x 2500/2 =

200000 + 1600 +2500 = 204100 $

Annual Saving = TCU(2500) – TCU(2000) = 204100 – 204000 = 100 $.

The current policy is to order 2500 units every 20 days whenever the inventory level
reaches 1600 units. This policy results of an annual saving of 100$.

Page 6 of 23
2. (10 Points) The daily demand for a certain product is 400 units. The production rate is
1200 units per day and a cost of $1500 is incurred each time the machines are setup
for production. The storage cost is $0.2 per item per day and the production cost is $5
per unit. Determine the optimal production policy quantity.

Solution of exercise 2:
The POM QM output is:

Interpretation:
The optimal production policy is to produce 3000 units every 7.5 days. This policy results
in a minimum total cost of 2400 per day. The total inventory cost is 400$/ day.

Page 7 of 23
3. (25 Points) Below are the data for a Time-Cost CPM Scheduling model analysis. The
time is in days and the costs include both direct and indirect costs.
Immediate Normal Crash Normal Crash
Activity Predecessor Time Time Cost Cost
A None 3 2 $200 $400
B A 3 1 $300 $500
C B 5 3 $200 $300
D A 7 4 $200 $500
E C and D 2 1 $500 $900
a) Use the normal costs and durations to find the total duration of the entire
project, total cost, Earliest/Latest Start and Finish as well as the slack of of
each activity.
b) Crash this project to reduce the total time to the minimum duration. Provide
the total duration and cost at each step.
c) Find the schedule with the minimum total cost if the direct cost is $200/day.
Indirect cost

Page 8 of 23
Solution of exercise 3:
a) Use the normal costs and durations to find the total duration of the entire
project, total cost, Earliest/Latest Start and Finish as well as the slack of of
each activity.
The POM QM output is:

The total duration of the project is 13 days.

Total cost = 200 + 300 + 200 + 200 + 500 = 1400 $
Early Start (ES)
Early Finish (EF)
Late Start (LS)
Late Finish (LF)

ES of A = EF of A  Slack = 0
ES of B = EF of B  Slack = 0
ES of C = EF of C  Slack = 0
ES of D < EF of D  Slack = LS – ES = LF – EF = 1
ES of E = EF of E  Slack = 0

Delaying Activity D by 1 day will not delay the end project, since the slack is 1.
So as long as the delay is less than or equal to the slack, the duration of the project will
not be affected.

As for the rest of activities, they can not be delayed because their slack is zero. In case
they were delayed, the total duration of the project will be increased, hence the end
project will be delayed.

Page 9 of 23
 b) Crash this project to reduce the total time to the minimum duration. Provide
the total duration and cost at each step.
The POM QM output is:

We crash a criticial activity with the minimum crash cost.

1- Crash C by 1 day;
Total Duration = 13 – 1 = 12 days
Total cost = 1400 – 50 = 1350$

Page 10 of 23
 2- Crash C again and D;
Total duration = 12 – 1 = 11 days
Total cost = 1350 – (50 + 100) = 1200 $

3- Crash B and D
Duration = 11 – 1 = 10 days
Total cost = 1200 – (100 + 100) = 1000 $

4- Crash B and D again

Duration = 10 – 1 = 9 days
Total cost = 1000 – (100 + 100) = 800 $

5- Crash A
Duration = 9 – 1 = 8 days
Total cost = 800 – 200 = 600 $

6- Crash E
Duration = 8 – 1 = 7 days
Total cost = 600 – 400 = 200$

Page 11 of 23
 c) Find the schedule with the minimum total cost if the direct cost is $200/day.
Indirect cost

Schedule Duration Direct Cost Indirect = Total cost

(duration x
indirect cost)
1 13 1400 2600 4000
2 12 1450 2400 3850
3 11 1600 2200 3800
4 10 1800 2000 3800
5 9 2000 1800 3800
6 8 2200 1600 3800
7 7 2600 1400 4000

The minimum total cost is 3800$.

So we can stop crashing at A, when the total duration becomes 8 days.

Page 12 of 23
4. (25 Points) Libby Temple Manufacturing has three factories (X, Y, and W) and three
warehouses (A, B, and C). The following table shows the shipping costs between each
factory and warehouse, the factory manufacturing capabilities (in thousands of units),
and the warehouse capacities (in thousands of units).
a) Find the starting solution using the North-West Corner method.
b) Find the starting solution using the Least Cost method.
c) Repeat part (a) if the demand for warehouse B is now 14.

A B C PRODUCTION
CAPACITY
X $6 $5 $3 6
Y $8 $10 $8 8
W $11 $14 $18 10
CAPACITY 7 12 5

Page 13 of 23
Solution of exercise 4:
a) Find the starting solution using the North-West Corner method.
The POM QM output is:

Page 14 of 23
 The starting solution may or may not be the optimal solution.

The starting solution is to transport:

6000 truckloads from Factory X to Warehouse A
1000 truckload from Factory Y to Warehouse A
7000 Truckloads from Factory Y to Warehouse B

Page 15 of 23
 5000 truckloads from Factory W to Warehouse B
5000 truckloads from Factory W to Warehouse C

Cost Z = 6000 x 6 + 1000 x 8 + 7000 x 10 + 5000 x 14 + 5000 x 18 = 274,000 $

After 4 iterations, the optimal solution is to transport:

1000 truckload from Factory X to Warehouse B
5000 truckloads from Factory X to Warehouse C
8000 Truckloads from Factory Y to Warehouse B
7000 truckloads from Factory W to Warehouse A
3000 truckloads from Factory W to Warehouse B

The 4th iterations shows that, the Cij Bar of Factory Y to warehouse C is zero. This
indicates that there is an alternative optimal solution, resulting in the same total cost.

The total cost of the optimal solution is Z = 5x1000 + 3x5000 + 8x10000 + 11x7000 +
14x3000 = 219000$

Page 16 of 23
 b) Find the starting solution using the Least Cost method.
The POM QM output is:

The starting solution may or may not be the optimal solution.

Page 17 of 23
 The starting solution is to transport:
1 truckload from Factory X to Warehouse B
5 truckloads from Factory X to Warehouse C
7 Truckloads from Factory Y to Warehouse A
1 truckload from Factory Y to Warehouse B
10 truckloads from Factory W to Warehouse B

Cost Z = 1000 x 4 + 5000 x 3 + 7000 x 8 + 1000 x 10 + 10000 x 14 = 225000 $

After 2 iterations, the optimal solution is to transport:

1000 truckload from Factory X to Warehouse B
5000 truckloads from Factory X to Warehouse C
8000 Truckloads from Factory Y to Warehouse B
7000 truckloads from Factory W to Warehouse A
3000 truckloads from Factory W to Warehouse B
In the optimal solution, after the 2nd iteration, the Cij Bar of Factory Y to warehouse C is
zero. This indicates that there is an alternative optimal solution, resulting in the same
total cost.

The total cost of the optimal solution is Z = 5x1000 + 3x5000 + 8000x10 + 11x7000 +
14x3000 = 219000$

Page 18 of 23
 c) Repeat part (a) if the demand for warehouse B is now 14.
The POM-QM output is:

The starting solution may or may not be the optimal solution.

Page 19 of 23
 The starting solution is to transport:
6000 truckloads from Factory X to Warehouse A
1000 truckload from Factory Y to Warehouse A
7000 Truckloads from Factory Y to Warehouse B
7000 truckload from Factory W to Warehouse B
3000 truckloads from Factory W to Warehouse C
2000 truckloads from Factory Dummy to Warehouse C

Cost Z = 6000x6 + 1000x8 + 7000x 10 + 7000x14 + 3000x 18 + 2000x0 = 266000$

After 5 iterations, the optimal solution is to transport:

1000 truckload from Factory X to Warehouse B
5000 truckloads from Factory X to Warehouse C
8000 Truckloads from Factory Y to Warehouse B
7000 truckloads from Factory W to Warehouse A
3000 truckloads from Factory W to Warehouse B
2000 truckloads from Factory Dummy to Warehouse B

The 2 truckloads from factory dummy to warehouse B will not go anywhere

 Demand < Supply
 2000 Truckloads remain unused.

In the optimal solution, after the 5 th iteration, the Cij Bar of Factory Y to warehouse C is
zero. This indicates that there is an alternative optimal solution, resulting in the same
total cost.

The total cost of the optimal solution is Z = 5x1000 + 3x5000 + 8000x10 + 11x7000 +
14x3000 + 2000x0 = 219000$

Page 20 of 23
 5. (15 Points) The Orange Top Cab company has a taxi waiting at each of four cab
stands in Evanston, Illinois. Four Customers have called and requested service.
The distances, in miles, from the waiting taxis to the customers are given in the
following table.
a) Find the optimal assignment of taxis to customers so as to minimize total
driving distances to the customers.
b) A new stand (Stand 5) is now available with waiting times of 6, 4, 9, and
12. Find the new optimal assignment of taxis to customers so as to
minimize total driving distances to the customers.

CUSTOMER
CAB SITE
A B C D
Stand 1 7 2 4 8
Stand 2 5 4 6 5
Stand 3 6 7 9 6
Stand 4 8 6 7 4

Page 21 of 23
Solution of exercise 5:
a) Find the optimal assignment of taxis to customers so as to minimize total driving
distances to the customers.
The POM-QM output is:

The optimal assignment is to assign:

 Stand 1 to customer B
 Stand 2 to customer C
 Stand 3 to customer A
 Stand 4 to customer D

The minimum assignment cost is = 2 + 6 + 6 + 4 = 18 $

Page 22 of 23
 b) A new stand (Stand 5) is now available with waiting times of 6, 4, 9, and 12. Find
the new optimal assignment of taxis to customers so as to minimize total driving
distances to the customers.
The POM-QM output is:

The optimal assignment is to assign:

Stand 1 to customer C
Stand 2 to customer A
Stand 3 to customer Dummy
Stand 4 to customer D
Stand 5 to customer B

The minimum assignment cost is = 4 + 5 + 0 + 4 + 4 = 17$

Adding a new stand will decrease the total cost by 1$, as the stand assigned to customer
Dummy will not be used.

Page 23 of 23