Case Study #4 (Optional)
Background
WeRFast is a specialty bicycle manufacturing firm located in Northern California. They make all kinds of
bicycle computers including those for road bikes, mountain bikes, and e-bikes. Scooter Jones is the
president of WeRFast and is becoming concerned about the production policy for the company’s bestselling street bike computer with GPS. Annual demand has been steady at 10,000 units each year.
Because WeRFast sells to retailers throughout the United States and online, demand is constant
throughout the year.
Production capacity at the WeRFast factory is 250 units per day. For each production run, it costs the
company $120 to change the assembly line for a new computer including moving raw materials and
changing dies. The holding cost for the bicycle computers, which sell for $150 per unit retail, is $50 per
year in a secure storage area at the factory.
Part 1
Scooter notes that the current production plan calls for 500 computers to be produced in each assembly
run. Knowing that there are 250 working days per years (and over 100 days for bicycling!), please address
the following questions.
Questions
1. What is the daily demand for this product?
2. If WeRFast continues to produce 500 units each time an assembly run starts, how many days does
production continue?
3. Under the current policy, how many production runs are needed per year? What is the annual
setup cost?
4. If the current policy continues, how many computers would be in inventory when production
stops? What would the average inventory level be?
5. If the company produces 500 bicycle computers at a time, what would the total annual setup and
holding cost be?
6. If Scooter Jones want to minimize the total annual inventory cost, how many computers should
be manufactured and assembled in each production run? How much would this save the
company in inventory costs compared to the current policy of producing 500 units in each run?
Part 2
Luke Smith is the manufacturing manager at WeRFast. One of his concerns is that the machine used to
form the plastic cases for the bicycle computers is aging. Luke wants to convince Scooter to purchase a
new plastic forming machine. He has documented the probabilities of breakdowns in the table below.
The cost per breakdown is $10. What is the expected breakdown cost of the machine? If you are Scooter
Jones, how would you respond to Luke’s request for a new machine?
Number of Breakdowns 0 1 2 3
Daily Frequency 0.3 0.2 0.2 0.3
Part 3
Monica Breeze is the Director of R&D at WeRFast. She has a few designs of new bicycle computers that
she would like to prototype and test. One is the “X-V-5” new road bike computer and the other is a
modification of the best-selling mountain bike computer which she calls the “Hardy-2”.
WeRFast will sell the prototypes directly to customers with a 10% discount from the normal retail price to
obtain the design and testing information. Additionally, the marketing team at WeRFast wants to
maximize the profit from the prototype computers.
The X-V-5 computer uses 3 computers chips for monitoring speed and 1 chip for GPS. The Hardy-2 uses 2
speed-monitoring chips and 2 GPS chips. Monica has 80 speed-monitoring chips and 120 GPS chips in
storage and ready for assembly. How many X-V-5 and Hardy-2 computers should she make for prototype
testing with potential customers?