The vending machine problem is to assess the financial value of a device, placed in a vending machine, which electronically reports the stock levels at the end of each day. Ordinarily, the only way to get information about stock levels (and hence sales levels) is to send a restock truck out to the vending machine site. The truck driver will record the replenishment amounts, and report them at the end of the day. Companies typically do have historical information of this type.

For this project, describe what kinds of information you would need and how you would perform the assessment. You should not perform any actual data collection. See the two sections below to get started.

(1) If you studied one vending machine, you might want to know: Q1 How many times per month would you have to restock the machine, on average, if you had perfect real-time information on stock levels, and could restock instantaneously? This scenario is overly optimistic, and represents a lower bound on the benefits of inventory information. Q2 How many times per month would you have to restock the machine, on average, to keep the probability of running out of stock during the month below .05, if you only had historical information (i.e. you would not know current stock levels until you sent a truck to restock the machine)? The difference between the answers to these two questions is an optimistic estimate of the benefit (in terms of reduction in restocks) of stock level information.

(2) Prepare a list describing what information would you need to have to be able to advise a company whether or not it should purchase the device? For each information category, you should believe that the company would have the data, or that you could acquire the data. You will need a lot more kinds of information than just the cost of the device, and the types of information you collected in part 1. Hint: the device enables the company to realize two major financial benefits. The first benefit is that the company can maintain the same level of customer service (i.e. probability that the machine does not run out of stock) with fewer restocks per year (on average). This reduces transportation and delivery costs. The second benefit is that the company can maintain the same level of customer service while decreasing average inventory levels in the machines. This reduces inventory costs.

The items on your list should be specific and precise. Avoid vague answers such as "inventory cost per can," "restock cost," or "tranportation cost."