Read Case Study Case 15.2 “Ebony Bath Soap”, and then complete the following items.
- For Questions 1 and 2 of the case, use the Palisade DecisionTools Excel software to set up a simulation model and run a simulation with 500 trials for the case. Ensure that all Palisade software output is included in your files and that only one Excel file is open when running a simulation. Use the “Topic 3 Case Study Template” file as a starting point. Hint: The RiskSimtable function will be helpful for running the simulations.
- Respond to Question 3 as written in the case study.
- Respond to Questions 4, 5, and 6 as written in the case study.
15.2 Ebony Bath Soap Case Study
Management of Ebony, a leading manufacturer of bath soap, is trying to control its inventory costs. The weekly cost of holding one unit of soap in inventory is $30 (one unit is 1000 cases of soap). The marketing department estimates that weekly demand averages 120 units, with a standard deviation of 15units, and is reasonably well modeled by a normal distribution. If demand exceeds the amount of soap on hand, those sales are lost—that is, there is no backlogging of demand. The production department can produce at one of three levels: 110, 120, or 130units per week. The cost of changing the production level from one week to the next is $3000.
Management would like to evaluate the following production policy. If the current inventory is less than L=30 units, they will produce 130 units in the next week. If the current inventory is greater than U=80 units, they will produce 110 units in the next week. Otherwise, Ebony will continue at the previous week’s production level.
Ebony currently has 60 units of inventory on hand. Last week’s production level was 120.
Questions
1.Develop a simulation model for 52 weeks of operation at Ebony. Graph the inventory of soap over time. What is the total cost (inventory cost plus production change cost) for the 52 weeks?
2.Run the simulation for 500 iterations to estimate the average 52-week cost with values of U ranging from 30 to 80 in increments of 10. Keep L=30 throughout.
3.Report the sample mean and standard deviation of the 52-week cost under each policy. Graph the average 52-week cost versus U. What is the best value of U for UUL=30?
4.What other production policies might be useful to investigate?
5.Based on the simulation results, discuss the Annual Cost output statistical distributions. Assume that your audience as minimal background in statistics.
6.Discuss which Annual Cost output probability distribution has the most dispersion and explain why this is so.
- Ensure that the Palisade software output is included with your submission using Textbook version (for academic use only) of @Risk
- Ensure that Excel files include the associated cell functions and/or formulas if functions and/or formulas are used.
- Include a written response to all narrative questions presented in the problem by placing it in the associated Excel file.
- Include screenshots of all simulation distribution results for output variables.
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