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Supply Chain Operation Management

Dorothee is planning her daughter Elsa’s birthday party which will take place at the Young Chefs Academy (YCA) in Frisco. The kids will make pizza from scratch, cook it then eat it. One week before the party date, Dorothee has to communicate to the YCA a fixed number of kids and this number is used to determine the cost of the party. Specifically, the price charged by YCA is equal to $18 times the quoted number of kids. If, on the day of the party fewer kids show up than the quoted number, Dorothee does not get a refund. If, on the other hand, more kids show up than the quoted number, she has to pay $25 per extra kid. Separately, Dorothee will also buy some “goodie bags” at Party City (Elsa’s favorite store) for the kids to take home with them after the party. These will be purchased one week before the party and cost $5 per bag. If, after the party, there are some goodie bags left, Dorothee’s friend Mary will buy them back from her for $3 each. If, on the other hand, there are not enough goodie bags on the day of the party, Dorothee will run to the nearest store and buy a few small gadgets and sweets at a cost of $8 per extra goodie bag needed. Elsa has invited 20 of her best friends. Based on this number, the possible number of kids coming to the party, and the corresponding probability, is given in the following table:

A. What is the expected number of kids that will show up on the day of the party?__ kids

B. Suppose Dorothee tells the YCA that 17 kids will come to the party and picks up 17 goodie bags from Party City but in fact 18 kids show up on the day of the party. How much is her total cost? $______

C. Suppose Dorothee tells the YCA that 17 kids will come to the party and picks up 17 goodie bags from Party City but in fact only 14 show up show up on the day of the party. How much is her total cost? $_____

D. Suppose Dorothee decides to tell the YCA that 17 kids will come to the party and picks up 17 goodie bags from Party city.

What is her expected total cost? $______
What is the expected number of goodie bags which will be sold to Mary after the party? _goodie bags What is her probability of running out of goodie bags (i.e., stock-out probability)? %
What proportion of goodie bags given to the kids can she expect will be coming from the ones bought at Party City (i.e., fill rate)? _% What is the probability that her total cost for the party (YCA plus goodie bags) is above $400? %
E. Assume that the number of kids Dorothee quotes to the YCA is also the number of goodie bags she buys at Party City one week before the party. What should this number be if Dorothee wishes to minimize her expected total cost, that is, the expected total cost of the party (YCA plus goodie bags)? ______kids

F. How many goodie bags should Dorothee buy at Party City to make sure there is less than a 10% chance that she needs to run to the nearest store to buy gadgets for the missing goodie bags? ______goodie bags

G. How much would Dorothee expect to spend on the party if she could see the future, that is, if she could predict for sure how many kids will come to the party? $________

H. Calculate the expected mismatch cost if Dorothee communicates a number of 17 kids coming to the party and purchases 17 goodie bags at Party City. $______

Full Answer Section

If 18 kids show up and Dorothee tells the YCA that 17 kids will come to the party, she will have to pay an extra $25 for the extra kid. Her total cost for the YCA will be $18 * 17 + $25 = $323.

Dorothee will also have to pay for the 17 goodie bags she bought at Party City, which will cost her $5 * 17 = $85.

Her total cost for the party will be $323 + $85 = $408.

If 14 kids show up and Dorothee tells the YCA that 17 kids will come to the party, she will not get a refund for the 3 extra kids. Her total cost for the YCA will be $18 * 17 = $306.

Dorothee will also have to pay for the 17 goodie bags she bought at Party City, even though she will only need 14 of them. She can sell the 3 extra goodie bags to her friend Mary for $3 each, so she will get back $3 * 3 = $9.

Her total cost for the party will be $306 + $85 - $9 = $372.

D. Suppose Dorothee decides to tell the YCA that 17 kids will come to the party and picks up 17 goodie bags from Party city.

What is her expected total cost? $______

To calculate the expected total cost of the party, we need to multiply each possible cost by its corresponding probability and then add up the products.

Possible cost	Probability	Expected cost
$323	0.2	$64.60
$306	0.3	$91.80
$372	0.3	$111.60
$408	0.2	$81.60
Total	1	$349.60

Therefore, the expected total cost of the party is $349.60.

What is the expected number of goodie bags which will be sold to Mary after the party? _goodie bags

To calculate the expected number of goodie bags which will be sold to Mary after the party, we need to multiply each possible number of goodie bags by its corresponding probability and then add up the products.

Possible number of goodie bags	Probability	Expected number of goodie bags
0	0.2	0
1	0.3	0.3
2	0.3	0.6
3	0.2	0.6
Total	1	1.5

Therefore, the expected number of goodie bags which will be sold to Mary after the party is 1.5 goodie bags.

What is her probability of running out of goodie bags (i.e., stock-out probability)? %

The probability of running out of goodie bags is the probability that 18 or more kids show up.

Sample Answer

To calculate the expected number of kids that will show up on the day of the party, we need to multiply each possible number of kids by its corresponding probability and then add up the products.

Expected number of kids = (15 * 0.2) + (16 * 0.3) + (17 * 0.3) + (18 * 0.2) = 16.4 kids

B. Suppose Dorothee tells the YCA that 17 kids will come to the party and picks up 17 goodie bags from Party City but in fact 18 kids show up on the day of the party. How much is her total cost?