Page 260 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes 7. When both demand and lead times are ........................, the basic procedure for finding

operating doctrines is a convergence procedure.
8. For the quantity/reorder point model, the order quantity is computed assuming
........................ .
9. The inventory level at which the order is released is known as the ........................ .
10. The ........................ the reorder point coverage to their optimal values.

10.6 Review Questions

1. What is Economic Order Quantity (EOQ)? Explain the EOQ model of inventory with its
simplifying assumptions. How is the model of inventory used by a manufacturer different
from a retailer?
2. What is the cost of uncertainty in demand during lead time?

3. Nuvyug Industries Ltd. has an annual requirement of 5,000 pieces of brake cylinders for
its popular brand of golf carts. Each brake cylinder has a carrying cost of 25 per unit
per year. The Ordering Cost per order is 800. Calculate the total inventory cost for the
following values of number of orders: 5, 10, 20, and 25. Plot the various costs with respect

to these orders on a graph and use it to find the EOQ.
4. Hindustan Levers is a manufacturer of the Surf detergent powder. A 100-g pack of its
detergent power is priced at 30 for its suppliers. One of its suppliers purchases 16,000 packs
per annum. The suppler incurs an ordering cost of 350.00 per order and has a carrying cost
of 12% of the inventory value. Hindustan Levers offers discounts for the following ranges of
bulk purchases to its suppliers: 0.5% for 3,000 - 6,999 units, 0.75% for 7000 – 9,999 units and
1% for 10,000 and more units. Which discount option should the supplier choose? What is
the EOQ in this case?
Answers: Self Assessment

1. Economic Order Quantity Model 2. Constant setup cost
3. Demand 4. Minimize average annual variable costs
5. Holding inventory 6. Fixed-time period models
7. Probabilistic 8. Constant demand
9. Reorder level. 10. Order quantity

10.7 Further Readings

Chunawala and Patil, Productions and Operations Management, Himalaya.
Everest E Adam & Elbert, Productions and Operations Management, PHI Publications,
4th Ed.
Joseph G. Monks, Operations Management (Theory & Problems), McGraw-Hill Intl.
S.N. Chary, Productions and Operations Management, TMH Publications.

Upendra Kachru, Productions and Operations Management, Excel Books, New Delhi.

254 LOVELY PROFESSIONAL UNIVERSITY