Page 284 - DCOM303_DMGT504_OPERATION_RESEARCH

Unit 13: Inventory Control

13.5 Keywords Notes

A-B-C Analysis :This analysis is based upon Pareto Principle according to which in many situations,
majority of the activity (70 to 80%) is governed by very few (10 to 20) attributes.

VED Analysis: It represents classification of items based on their criticality and classifies items
into 3 groups called ‘Vital’, ‘Essential’ & ‘Desirable’
Vital items are those items which are very critical for the operations and do not permit any
corrective time i.e. they cannot be procured off the shelf if they are not available.
Essential items are comparatively less vital and work without them cannot be managed for few
days.

13.6 Review Questions

1. What are the motives for carrying inventory?
2. What is an inventory system? Give example of various types of inventory systems.
3. Describe the basic characteristics of an inventory system.

4. What are inventory models? Enumerate the various types of inventory models? Describe
them briefly.
5. What are the costs associated with inventory?

6. Explain the following – Lead time, Reorder point, carrying costs.
7. Obtain an expression for the EOQ for any one inventory model, stating the assumptions
made.

8. What is selective inventory control?
9. Explain ABC Analysis. What are its advantages and limitations, if any?
10. Write short notes on selective inventory control techniques.

11. XYZ Co. buys in lots of 2,000 units which is only 3 months supply. The cost per unit is ` 125
and the order cost is ` 250. The inventory cost is 20% of unit value. How much money can
be saved by using Economic Order Quantity?

12. A ship building firm uses rivets at a constant rate of 20,000 numbers per year. Ordering
costs are ` 30 per year. The rivets cost is ` 1.50 per number. The holding cost of rivets is
estimated to be 12.5% of unit cost per year. Determine EOQ.
13. An oil engine manufacturer purchases lubricants at the rate of ` 4,500 per piece from a
vendor. The requirements of these lubricants are 1,800 per year. What should be the order
quantity per order, if the cost of placement of an order is ` 16.00 and inventory carrying
cost per piece per year is ` 0.40.

14. An aircraft company uses rivets at an approximate customer rate of 2,500 kg. per year. The
rivets cost at ` 30 per kg. and the company personnel estimate that it costs ` 130 to place an
order and the inventory carrying cost is 10% per year. How frequently should orders for
rivets be placed and what quantities should be ordered?

15. A company uses rivets at a rate of 5,000 kg. per year. Rivets cost ` 2 per kg. It costs ` 200 to
place an order and the carrying cost if inventory is 10% per year. How frequently should
order for rivets be placed and how much?

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