Page 198 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 9: Inventory Model and Safety Stocks

Appendix 6: Requirement of Gunny Bags for 1992 Notes
(One tonne =20 gunny bags, 2% extra bags required due to burstage)
(Quantity in Tonnes & Nos.)
Month OPC PPC Total OPC PPC Total
Cement Cement Cement (Requireme (Requireme (Requireme
Despatch Despatch Desptach nt of bags nt in Nos.) nt in Nos.)
(in (in (in in Nos.)
Tonnes) Tonnes) Tonnes)
January 12350 18500 30850 251940 377400 629340
February 15500 23250 38750 316200 474300 790500
March 18500 27700 46200 377400 565080 942480
April 17300 25900 43200 352920 528360 881280
May 17300 25900 43200 352920 528360 881280
June 15600 23400 39000 318240 477360 795600
July 17600 26300 43900 359040 536520 895560
August 18800 28200 47000 383520 575280 958800
September 18200 27200 45400 371280 554880 926160
October 17600 26300 43900 359040 536520 895560
November 17900 26900 44800 365160 548760 913920
December 19200 28800 48000 391680 587520 979200
Total 205850 308350 514200 4199340 6290340 1048960
- Average Requirement of OPC bags/month = 4199340/12 = 349945, say 350000
- Average Requirement of PPC bags/month = 6290340/12 = 524195, say 525000
- Average Requirement of bags/month = 10489680/12 = 873390, say 875000

Questions
1. Analyse the case and bring out the main problems in the case.

2. Suggest alternate ways for effective management of gunny bags inventory.
Source: Upendra Kachru, Production and Operations Management – Text and Cases, First Edition, Excel Book, New Delhi,
2007.
9.5 Summary

 Inventory can have a significant impact on both a company’s productivity and its delivery
time.

 The costs generally associated with inventories are Holding (or carrying) cost, Cost of
ordering, Set up (or production change) costs and Shortage or Stock-out Costs.
 The heart of inventory analysis resides in the identification of relevant costs.

 The ABC classification is based on focusing efforts where the payoff is highest, i.e., high-
value, high-usage items must be tracked carefully and continuously.
 The VED Classification is based on the criticality of the inventory item. ‘V’ stands for vital,
‘E’ for essential, ‘D’ for desirable.
 The rupee value of a company’s average level of inventory is one of the most common
measures of inventory.

 The optimum quantity (lot size) using a tabular approach is called the Economic Order
Quantity (EOQ).

LOVELY PROFESSIONAL UNIVERSITY 193