A manager is going to purchase new processing equipment and must decide on the number of spare parts to order with the new equipment. The spares cost $200 each, and any unused spares will have an expected salvage value of $50 each. The probability of usage can be described by this distribution:
|
Number
|
0
|
1
|
2
|
3
|
|
Probability
|
.10
|
.50
|
.25
|
.15
|
If a part fails and a spare is not available, two days will be needed to obtain a replacement and install it. The cost for idle equipment is $500 per day. What quantity of spares should be ordered?
a. Use the ratio method.
b. Use the tabular method (see Table 13.4).
Text Book: Operations Management By Santosh Patnaik.