QNT 561 – Week 3 – Expansion Strategy and Establishing a Re-Order Point

This assignment has two cases. The first case is on expansion strategy. Managers constantly have to make decisions under uncertainty. This assignment gives students an opportunity to use the mean and standard deviation of probability distributions to make a decision on expansion strategy. The second case is on determining at which point a manager should re-order a printer so he or she doesn’t run out-of-stock. The second case uses normal distribution. The first case demonstrates application of statistics in finance and the second case demonstrates application of statistics in operations management.

Assignment Steps

Resources:Microsoft Excel®,

Bell Computer Company Forecasts

data set,

Case Study Scenarios

Include answers to the following:

Case 1: Bell Computer Company

Compute the expected value for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of maximizing the expected profit?

Compute the variation for the profit associated with the two expansion alternatives. Which decision is preferred for the objective of minimizing the risk or uncertainty?

Case 2: Kyle Bits and Bytes

What should be the re-order point? How many HP laser printers should he have in stock when he re-orders from the manufacturer?

Case Study – Week 3 Individual Assignment
QNT/561 Version 9
University of Phoenix Material
Case Study – Bell Computer Company
The Bell Computer Company is considering a plant expansion enabling the company to begin production
of a new computer product. You have obtained your MBA from the University of Phoenix and, as a vicepresident, you must determine whether to make the expansion a medium- or large- scale project. The
demand for the new product involves an uncertainty, which for planning purposes may be low demand,
medium demand, or high demand. The probability estimates for the demands are 0.20, 0.50, and 0.30,
respectively.
Case Study – Kyle Bits and Bytes
Kyle Bits and Bytes, a retailer of computing products sells a variety of computer-related products. One of
Kyle’s most popular products is an HP laser printer. The average weekly demand is 200 units. Lead time
(lead time is defined as the amount of time between when the order is placed and when it is delivered) for
a new order from the manufacturer to arrive is one week.
If the demand for printers were constant, the retailer would re-order when there were exactly 200 printers
in inventory. However, Kyle learned demand is a random variable in his Operations Management class.
An analysis of previous weeks reveals the weekly demand standard deviation is 30. Kyle knows if a
customer wants to buy an HP laser printer but he has none available, he will lose that sale, plus possibly
additional sales. He wants the probability of running short (stock-out) in any week to be no more than 6%.
Purpose of Assignment
This assignment has two cases. The first case is on expansion strategy. Managers constantly have
to make decisions under uncertainty. This assignment gives students an opportunity to use the
mean and standard deviation of probability distributions to make a decision on expansion strategy.
The second case is on determining at which point a manager should re-order a printer so he or she
doesn’t run out-of-stock. The second case uses normal distribution. The first case demonstrates
application of statistics in finance and the second case demonstrates application of statistics in
operations management.
Assignment Steps
Resources: Microsoft Excel®, Bell Computer Company Forecasts data set, Case Study Scenarios
Write a 1,050-word report based on the Bell Computer Company Forecasts data set and Case
Study Scenarios.
Include answers to the following:
Case 1: Bell Computer Company
•
•
Compute the expected value for the profit associated with the two expansion alternatives.
Which decision is preferred for the objective of maximizing the expected profit?
Compute the variation for the profit associated with the two expansion alternatives. Which
decision is preferred for the objective of minimizing the risk or uncertainty?
Case 2: Kyle Bits and Bytes
Copyright © 2017 by University of Phoenix. All rights reserved.
1
Case Study – Week 3 Individual Assignment
QNT/561 Version 9
•
What should be the re-order point? How many HP laser printers should he have in stock
when he re-orders from the manufacturer?
Copyright © 2017 by University of Phoenix. All rights reserved.
2
Case Study – Week 3 Individual Assignment
QNT/561 Version 9
University of Phoenix Material
Case Study – Bell Computer Company
The Bell Computer Company is considering a plant expansion enabling the company to begin production
of a new computer product. You have obtained your MBA from the University of Phoenix and, as a vicepresident, you must determine whether to make the expansion a medium- or large- scale project. The
demand for the new product involves an uncertainty, which for planning purposes may be low demand,
medium demand, or high demand. The probability estimates for the demands are 0.20, 0.50, and 0.30,
respectively.
Case Study – Kyle Bits and Bytes
Kyle Bits and Bytes, a retailer of computing products sells a variety of computer-related products. One of
Kyle’s most popular products is an HP laser printer. The average weekly demand is 200 units. Lead time
(lead time is defined as the amount of time between when the order is placed and when it is delivered) for
a new order from the manufacturer to arrive is one week.
If the demand for printers were constant, the retailer would re-order when there were exactly 200 printers
in inventory. However, Kyle learned demand is a random variable in his Operations Management class.
An analysis of previous weeks reveals the weekly demand standard deviation is 30. Kyle knows if a
customer wants to buy an HP laser printer but he has none available, he will lose that sale, plus possibly
additional sales. He wants the probability of running short (stock-out) in any week to be no more than 6%.
Copyright © 2017 by University of Phoenix. All rights reserved.
1
Low
Demand Medium
High
Medium-Scale
Large-Scale
Expansion Profits
Expansion Profits
Annual
Annual
Profit
Profit
($1000s)
($1000s)
P(x)
P(x)
50
20%
0
20%
150
50%
100
50%
200
30%
300
30%
Expected Profit ($1000s)
Risk Analysis for Medium-Scale Expansion
Annual Profit
(x)
Probability
P(x)
(x – µ)2 (x – µ)2 * P(x)
Demand $1000s
(x – µ)
Low
50
20%
Medium
150
50%
High
200
30%
σ2 =
σ=
Risk Analysis for Large-Scale Expansion
Annual Profit
(x)
Probability
P(x)
(x – µ)2 (x – µ)2 * P(x)
Demand $1000s
(x – µ)
Low
0
20%
Medium
100
50%
High
300
30%
σ2 =
σ=