Case Study:JET Copies Case Problem

Iames looked around and noticed what Robin was talking about. Robin and he were students at State Universiry and most of the customers at Klecko's were also students- As Robin suggested a lot of the people waiting were State students who lived at Southgate Apartments, where James also lived with Ernie Moore. This gave fames an idea whidr he shared with Ernie and their friend Terri Jones when he got home later that evening.

"Inolq you gu1lls, I've got an idea to make some money,'Iames started.'Let's open a copy business! AII we have to do is buy a copier, put it in Terri's duplex next door, and sell copies. I know we crn get flrritomers because I've just seen them all at lCe*o's. If we provide a copy service right here in the Southgate complu, we'll make a killingl

Terri and Ernie liked the idea so the three decided to go into the copying business. They would call it IET Copies, named for Jameq Eroie, and Terri Their first step was to purchase a copier. They bought one like &e one used in the college of business office at State for $18,000. (Terri's parents provided a len-) The com- pany &at sold them the copier touted the copiert reliability, but aftertheybought it, Emie talkedwithsomeone in the deaa's office at State,whotoldhim thatthe Univeniqy's copierbroke down fre- quently and when it di{ it often took between I and 4 days to get it repaired. When Ernie told this to Terri and |ames, they became worried. If the copier broke down frequently and was not in use for long periods while they waited for a repair person to come fix it they could lose a lot of revenue. As a result, Iames, Erde and Terri thought they might need to purchase a smaller backup copier for $8,000 to use when the main copier broke down. However, before they approached Terri's parents for another loan, they waated to have an estimate of just how much money they might lose if they did not have a backup copier. To get this esti- mate, they decided to. develop a simulation model because they were studying simulation in one of their classes at Sate.

To develop a simuLation model, they first needed to lnow how frequently the copier might break dowr--specifically, the tiue between breakdowns. No one could provide them with an exact probability distribution, but from talking to staffmembers iu the college of busin€sq Iames estimated that the time betrveen break- downs was probably between 0 and 6 weeks, with the probability increasing the longer the copier went without breaking dov'.n. Thus, the proMbility distribution ofbreakdovms generally looked like the following:

Cesn PnosmMs 679

Ned, thef aeeded to knorr how long it would take to get the copier repaired when it broke dorm. They had a service contract with the dealer that'guaranteed'prompt repir service. However, Terri pthered some data from &e college of business from whidr stre doeloped the fcillowing probability distribution of repair times:

nepairTime (days) Probability

I 2

3

4

Finally, they needed to estimate how mudr business theywould lose while &e copicr was uaiting for rqpair. The three of them had onS a vague idea of how much business they would do but finally estimatedthattheywould sellbetween 2,0S and E 0@ copis per day at $0.10 per copf. Hosever, they tiad no idea about vilrat kind of probability distribution to use for thh range of values. Therefore they decidedto use a uniform probabilitydistribution between2,000 and 8,000 copiesto estimate thenumber of copiestheywouldsellper dal.

Iames, Ernie and Tsri &cided &at if their lms of revenue due to madrine dovmtime during I year vns $12000 or more, they should purd,ase a backup copier. Thuq they nee&d to simulate the break- dorrn and rqair process for a oumber of years to obtain an av€rage annual loss of rarenue. Howwe4 before prognmming the simuhtior model thry decided to conduct a manual simulation of thjs process for I year to se if the model was workirg oorrectf. Perform this manual sirmrlation for IET Copies and deermine the loss of revenue for I year.

.20

.45

.25

.10

1.00

,I ,$

ffi; BpNtrrr-Cosr ANALYSTS RrvenPnopcr

he U.S. Army Corps of Engineers has historically dams on various rivers in the southeastern

primary iustrument for evaluating and among many prolects under consideration is anal),sit. The CorPs estimates both the annual deriving from a project in several different the annual costs and then divides

bythe total costs to develop a benefit-cost ratio. is then used by the Coqps and Crngress to compare pmjects under consideration and select those for fund-

ing. A benefit-cost ratio greater than 1.0 indicates that the bene- fits are greater than the costs; and the higher a project's benefit-cost ratio, the more likely it is to be selected over projects

lower ratios. is waluatinga proiect to cotrstruct a dam over the

Spradlin tified six

River in southwest Georgia. The Corps has iden- in which benefits will accme: flood

t(x)

.43

6 x, wecks

THE SPRADLTN BLUFF thctOtAI

lntrcdudion Scionce, Tenth Editiicn, by Bemard W Taylor lll. PuHishd by Prer*ice l.lall. Copyrigrht @ 2010 by Pearson Education,