Operations Management: News-vendor problem
Please help me, find solution in this case. Thanks so much for your time...
Semicon is a start-up company that produces semiconductors for a variety of application. The process of burning in the circuits requires large amounts of nitric acid, which has a shelf life of only three months. Semicon estimates that the demand is normal distributed with mean 1800 gallons and stan-dard deviation 480 gallons of acid for the next three-month period. The acid costs them CHF 150 per gallon. The company assumes a 30 percent annual interest rate for the money it has invested in inven-
tory, and the acid costs the company CHF 35 a gallon to store. (Assume that all inventory costs are attached to the end of the three-month period.) Acid that is left over at the end of the three-month pe-
riod costs CHF 75 per gallon to dispose of. If the company runs out of acid during the three-month period, it can purchase emergency supplies quickly at a price of CHF 600 per gallon.
1) How many gallons of nitric acid
should Semicon purchase (news-
2) Suppose that now Semicon wants to
fulfil 94 percent of the forecasted
demand. How many gallons should
now be purchased at the start of
each three-month period?
3) Describe possible modifications
under consideration of different
contract types with the supplier.