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Unit 9: Inventory Model and Safety Stocks
Self Assessment Notes
10. Too much or too little, or the wrong inventory, all have detrimental impacts on operational
and ……………… results.
11. A ……………… turnover ratio reflects that there are less idle resources in the company,
and therefore the company is using its inventory efficiently.
12. Economic batch quantity is a measure employed to determine the quantity of units that
can be produced at ……………… costs in a specified batch or production run.
13. Hypothesis is rejected when it is true is called ……………… error.
14. Hypothesis is not rejected when it is false is called ……………… error.
15. A statistical hypothesis test is a method of making statistical decisions using ………………
data.
Case Study Gunny Bags Inventory at Western India Cement Company
he Western India Cement Company (WICC), a reputed and large Cement
Manufacturer operates an one million Tonne Cement plant at Cement Nagar in
T Western India. The plant has access to high quality limestone in close proximity of
the plant. Due to this, WICC has a Competitive edge in terms of cost of production and
quality of Cement. However, WICC is not so fortunate in respect of some of the other
materials it consumes, particularly coal and Gunny bags.
WICC has to put up with low quality (High Ash content) of coal and also irregular supply.
In addition there is long haulage for Coal. WICC manages its Coal requirements though
adequate stock of Coal along with occasional purchase from open market and road transport.
The situation in respect of Gunny bags is somewhat different. The availability of Gunny
bags is not a serious issue but the cost incurred on maintaining the Gunny bags inventory
is of concern to the management of WICC.
Almost the entire quantity of Cement produced in the Country is despatched through 50
Kg bags. The bulk transport of Cement, as in developed Countries, is yet to be accepted
widely in India.
There are some choices in respect of the Bags for transportation of Cement: in the form of
paper, polythene, Gunny Bags – with or without polythene lining, etc. The Government of
India has been consistently advocating and continuously supporting the use of Gunny
bags for Cement transportational partly to keep the Jute Industry viable and also for
energy and environmental considerations. WICC has been as a policy using Gunny bags
for the entire transportation requirements of Cement.
The total requirement of Gunny bags for a 1.0 million Tonne plant comes to 20.4 million
bags per year, considering burstage and other losses of about 2%. The annual expenditures
on procurement of Gunny Bags comes to ` 20.4 crores at an average cost of ` 10.00 per bag.
This being a high consumption value item it becomes essential to monitor its supplies on
a regular basis, so that there is no abnormal increase in the inventories as also the plant is
Contd...
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