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Quantitative management

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48 views20 pages

Quantitative

Quantitative management

Uploaded by

priyadharshinij1800
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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\\ ®) 4: Value of game yg “Ayes @u +42) @p tay) (5x4)=(2x3) _ (20-6) _7 6+4)—243)— 2 9-5 Hence the optimum mixed strategies are as follows: Example 32: Find the value of the following game: Al 2 Solution: There is not saddle point exist in this pay-off ‘matrix. Hence the players use mixed strategies: w a ofts Let consider 2 x 2 game which does not contain saddle point and whose pay-off matrix is as below: By B Aifan an Aalaa azz ‘BA Second ansitative Bo ~ roa sraegies Will E88 follows, semester (Q a = Gran) On Fay) 4-9 “G9-O) 4: ma Value of game Aydin ~ An8at Y* Gy tan) Gn ta) 24-72 _ x4)- 0x8) = 644-048) 10-17 imple 33: In a game of matching coins player A win Zo it here are two heads, wins nothing if there are two tails and loses €1 when there are one head and one tail, Determine the pay-off matrix, best strategies for each player and value of game. Or Find the optimal strategies and game value of the following game. Player B HT 2-1 Player A : -1 0 Solution: According to the given data the pay-off matrix corresponding to the given game is as follows: Player B a[T Player A [a | 2] 1 Tl-1[ 0 ‘Since the above game has 2 no saddle point we have to solve it for optimum mixed Strategies, ba bas, I s [HT 9 as strategies of player A and B respectively Let v be the value of the game, be the optimum mixed =p=-—S8er an 0-(-1 Gitan-e, $35)" @s0=C1) + OLE) od ot Replacement Modes (Unit (@-lnthe above figure, in Aah, maximum level of enor eycle has been 8 oq’, whereas the mini tory held has be ow ee, Osim ie of ven yg ted be Q/2- } the average inventory ing 2 dezision with regard to the Ie egy (EO), type of he level of economic erations they are (i) the ordering/set- taken into seit aying cos Therefor, or ae coats, and (aime et model Would’be as under: cost (TC) = Total Ordering Cost a Tra Ordering Cox (0) + Tota «fol Annual Ordering Cost (0) 9° Q, \ Annual Demand (D) £0 yvuld be worthwhile to mention here that in the Re Sue of hlding cons indeted in hole weve, incersin problems, the figure of bo ig tats is furnished as a proportion or percentage of the ot te Gntead of proving the same. absolute terms). ot AnnualHTolding Cost (t sanber of Order or example, in a problem, the figure of holding costs is wied to be 15% per annum of the value of an inventory ‘derif the value of an inventory item is given as 840, the costs would work out to be 15% of €40, or 15 x 19/100 ie. & 6 per unit per annum. ‘Therefore, if “° happens to be the proportion or percentage fase termed as holding rate), and ‘c’ is the value of inventory items, then the holding cost per unit (h Jnatemate method of determining OQ fs graphic and tabulation method, which involves a lot of complexity. $o,fllowing formula is applied in this method: 2D0 BOQ (Q) (ster, the holding cost is given as @ proportion! Teccentage). 0 % — B0Q@= 7 1) Annual Total Variable Inventory Cost: For arivin aie rezmomn annual ssvermory cost Q. may BP replaced by ‘in the cost equation as under [200 \, n 2 PO WUD = 2008 oo If the holding cost is indicated proportion or percentage terms, the formula ‘would be as under; rat 2) If the demand (*D") and BOQ (Q*) HAPRE A edema tant te optimal terval Pewee wsifonm and coors cay be ascertained Wi help of the following formula without any difficulty: ‘The optimal interval between the two successive orders or T*=Q/D_ (T* is also termed as the inventory cycle time) 3) The optimum number of orders placed per annum (N)which is equal to the reciprocal of T, may also be ‘calculated with the help of the following formula: = MT Pra oF manufacturing refrigerators, produces fofrigrators per annum, The cost for insti of cooling Tout is £10, for each refrigerator, The bode cost of teach cooling system for a year is ©. £150 per order, respective of the order size. Bits ‘optimum number of orders and the order SIZ ‘with a view to reducing the cost function {T (Q))- Solution: Before an attempt is made to solve the actual problem, it would be in order to undertake an analysis the entire prevailing situation. “Analysis: In case of an order for 2000 cooling s}Sts ay one order in a year would suffice, Ifthe order 62° 1 ont meoling system, two orders would be sufficient in ® joer Similriy, ifthe 500 units are ordered at one nk, sear ers would be required to be placed in a year. AS ron ror coat is fixed for one order irrespective ofits size, aoe ore ing number of orders would result in increasing are iy cost, However, increasing number of orders also ore se for smaller quantity, which leads to reduction jn holding cost ‘Therefore, there is a need to strike a balance between the aosng cost and holding cost in order to find out the order arith a view to reducing the cost function (T (Q)). The st tan of the above problem involves three distinct steps: J) Total ordering cost per annum: © (Q)=N x O Various options available for ascertaining the value Example 6: An electronics company, engaged i, the a a of : iuces 2000 are’ a) Q=2000 and 1x150 = 8150 ») Q=1000 and 2x150 = %300 ©) Ned Q=500 and d) N=S Qz=400 and 4x150 = 2600 5150 = 2750 ii) Total Annual Holding Cost: h(Q)=Zn 2 Various options available for ascertaining the value are: 20 = 2000 n(Q)= 20° 2.40=82400 100 = 1000 (Q)=40%<2.40=21200 SEE aE Tees ue TE enero 182 MBAS iii) Total (variable) Annual Inventory Cost: Calculation of Total Cost Order Number of] Annual | Annual | Total Quantity |orders per | Ordering | Holding | Annual annum | Cost | Cost | Cost 100 20 3,000 | 120 —[3.120. 200 10 1,500 | 240 [1,740 400. 5 750 | —480 [1,230 500 4 600, 600__| 1,200 1,000 2 300 [7,200 | 1,500. 2,000 ri 150 —|2,400~ [2,550 From the above table, it may be seen that the total annual cost is lowest when the order size is 500 units. Thus, the EOQ or Q is equal to 500 units. It is interesting to note that at this level, the ordering cost and holding cost are equal (i.e. 2600). As mentioned earlier, the graphic and tabulation method of ascertaining the value of BOQ is rather complicated. Following formula is applied in this regard: Bog (@ = 220 By putting various values given in the problem (O = £150 per order, h = 82.40 per unit per annum, and D = 2,000 units), we get the following: © Qs 7% 7000%150 256006 = 500 units Example 7: From the following information, find out the EOQ and total variable cost associated with’ the ordering policy: Annual Demand (D) = 250000 Ordering Cost ( (0) = £200 per order Inventory Carrying Cost (ic) = 40% of average inventory value Solution: EOQ (in rupees) = 220 2x 50000% 200 = = 5.00.00, i 0.40 ,00,00,000 = %7,071 Total cost T (Q) =-/2x50000%200%0.40 = 2,828 Example 8: The annual requirement of one of the components used in the main product of Toy Industy is 5400 units. The ordering cost is 8250 per order and the annual carrying / holding cost is 230 per unit, Find out the (i) BOQ, (i) number of orders per year, and Gi) the time gap between wo successive wean (lead time). tion:;Given, D = 5,400 units per year aoe oc Omens ner ander -30 per unit per year 2, [ i) B0QQ)=)= = 30 “= 90,000 =300 units Techniques for Decision y, D _ 5409 Q 309 “8 successive Orders (Legg jnative sond Semester Quantitati ec Numbirof orders! Year= crime betwee? 5 Q_300_ 0,056 year ool sein. month = 20 6898 (approx material requirements of g nd by supplier /- vendor, The fie ihe finns 4500 Unit: ordering, demand Mats are € 50 per order and 10% of then carrying vvnit per month respectively. If the mans price Petr unit, find the following: Js Re) Promie Order Quantity (EOQ); Total cost wrt. BOQ; vnber of orders placed in a year; and 2 i Solution: Giver: A= 350 per order; 7 Re. I per unit an = Re.0.1 per unit per month = &1.2 per unit per yegr i) The economic order quantity (EOQ) 2D0 _ [2x4500x50 £0Q(Q)= are = ra = 612.37per units(approx.) ii) Total cost 0)-(B}o+( Qevo ii) i ii) = je 9: Ra Examp™ fulfilled = 4500 units per year; 3.755000 2 = (4500/612) x50 + (612/2) x 1.24 1x49 5,308.37 per annum Number of orders per year = D/Q = 450/612 35 order per year iv) Time between two consecutive orders = QD 12/4500 .136 year & 632 month 2 8.96 days Example 10: Compute the EOQ and the total ‘variable cv (2% per year Obsolescence Rate: 7% per year. Solution: Carrying Cost (h) = (Storage Rate + ie Rate + Obsol Rate) x Unit Price 14124709 50 100 = 0.50 per unit per yoo" 00, ee = |=) 20 units h 050, .) 720 10. Total Variable Cost = /2DOh = V2x25%4x0.50 7" ter (Quantitative Tester ong 188 MBA Second Semmes alues of economic ordey ind the () OP ventory, il) maximum (ty the @ optimal ¥ A * [Link], EOQ Model with Shortages {£0Q), i) maxi 0) IBVERIONY petog cre (Economic lot “size system with instantaneOUS —guantty, (iv) EYEE OPN” Day replenishment) the (vi) shortage peri This model envisages (i) an expeditious supply of : Given, ; ordered items, (i) consumption of the received items at Satation: GIVE" oor yunits year constant rate, and (iii) unchanged purchase price per unit, b 500 univyear notwithstanding the order size. The striking feature of this ° z1000/order model is the condition that if there is no stock of the —— = 21500/unityeat at the time of ordering, the supply would be made at a late : riate formulae, date with a penalty. Eis feature is kaoW8 By applying the appro 2D0 Crh as ‘Backordering’. 5) FeonomicOrder Quantity (Q= >> Seth a : ‘The model may be expressed in the graphic form as under fis Z (000 _ 1500+500 _. (gure 43): : 00. Do 7229 Ui appa) Units 2D0_C, + ) Maximum Inventory (Qi)= 5G a [2%9000%1000 1500-164 ning I = 500 “75004500 ~ 0% (appre) Time ‘Figure 4.3: Inventory Model with Shortages Following variables are used in this model: D = Demand/period h Carrying cost/mit/period ° Ordering costlorder C, = Shortage costunit/period Q Order size Qi = Maximum inventory Q Maximum stockout T, = Period of positive stock T, = Period of shortage T = Cycletime (T; + Ts) Following are the optimal values of the above variables: £0Q(Q) = [220 G#h Rae, _ O_& Oa Gtk Q =Q -Q Q T2, D i Q D Q T= 2D Where, Number of orders/period =3 ‘example 14: The demand for one of the components used by a manufacturing concern is 9000 units per year. The 3 holding / carrying cost of each unit is ¥ 500 per year, the ordering cost is €1000 per order and the shortage cost is 1500 per unit per year. ii) Maximum Shortage Quantity Q2= Q-Q iii) Maximum Shortage = 00 6 = 56 units 220 in) Cyetesime (1) = 2 = 227. x365=9days(appan) Q V)_ Period of positive stock (T, )= 2 164 = 2% 5365 = 6.650r7days(approx. oy 'ys(approx.) vi) Period of shortage (Tp) =T-T, =9-7=2days D _ 9000 Number of orders per a= 2409 ondera per year QN) = 5 = 57 Example 15: The demand of a computer monitor cables 1,050 cables per month and shortages are allowed. I th cost of making one purchase is 700, holding cost of ont cable is %3 per year and the cost of one shortage is €50 pet ‘year, determine optimum purchase quantity and optimum ‘number of shortages. 1050 units/month = 12,600 units/yest Sine Tone Spear Tero, Oia Pace Quay) x 2DO, Ea ROTA, 335 ae x: = 2497 units (approx) eee, ws 2497 units (app |2D0 Maximum Inventory (Q,) = h it ar 188 Solution: Given, Demand (D) = 400 units Ordering cost (O} Holding cost (h) 2D0 E0Q(Q) Step 1: ‘The highest amount of discount available is 18.50. Thus, we can calculate EOQ (Qu) by using cost #8 218.50. [2700x400 18.50x0. £00(Q;) OQ (Qz) is 870 while b is 1000 showing that Q2 TE”) sity is 652-45 Um 0: Annual demand fan mi : example 20% / jer order. Im ns Ordering i gcefunidyear. ThE price break yt 18% of the are as sho} Find the optional order si22- Given, Sonal Demand ((p) = 26,000 units/year, Ordering Cost (O) = 600, Cost (h) 1.18, - Carrying Co 220, (2) = 15.8) = 9 st discount available is €9. Step 1: The highest : et ee san computing Qs* corresponding [0 that quantity, ie, ‘The typical yearly replacement rate is 4,800 pallets. The carrying costs amounts to 24% of the average inventory while ordering cost per order is £200. Solution: Given, Yearly demand (D) = 4,800 tyres Ordering cost (O) = £200 per order Carrying cost (h) = 24% of the unit cost Unit cost (P,) = %20.00; (P.) = 18.50 Step 1: The highest discount available is £18.50. Thus ‘computing Qo" corresponding to that quantity, i., Qu a=, |2DO = |2%4800%200 657.59 tyres bxP, | 0.24x18.50 Since, Qs* Service Rate (u) Go }6customers perhour ‘The mean waitin, be as follows: oo 20 ui-2)” 3636-20) 5x3600 . 5 Beg MOUS OT Evie 125seconds, ting time of a customer (in the system) will i time of a customer (in the queue) will ‘The mean w: be as follows: 1 1 1 W, = = hour, i., =A) Ge=To) TghOUh ie., 225seconds Example 4: The number of customers aniving ina ladies failor’s shop according to Poisson diatibution with aa Werage of 6 customers per hour, Tailor attends customers they come in the shop and customers have to wait unl ir number does not come. The tailor provides services to its customers at a mean rate of 10 customers per hour and service time is exponentially distributed, Determine: 1) Probability of the number of arrivals (0 through 5) durin; i) An interval of 15 minute, ii) An interval of 30 minute. 2)" The utilization factor. 3) The probability that queuing system is idle. 4) Average time that tailor do not have any customer on a 10 hour working day, ie., tailor is free. 5) The probability related with customers (0 through 5) in the queuing system, 6) Average number of customers in the shop. Solution: From the above problem, we have: Arrival Rate (2) = 6 customers per hour Service Rate (11) = 10 customers per hour Hence, 1) Probability of the number of arrivals (0 through 5) in two cases (a) when T= 15/60= 1/4 hour and (b) when T= 30/60=1/2 hour are given by the following table 5.1: ‘Table 5.1: Calculation of Probabilities of Arrivals MBA Second Semester (Quantitative Ted nies for Deion Making eq ‘These can be eaeulted using the folowing fy Where m =AT and it , we have, es X U/4 =1.5 for first case m =6x1/2 =3 for second case. = 06 2) Dilization factor p= = 75 = 01 3). Probability that queuing system is idle: - 04 time in which tailor i8 free in & 10 hoy 2 ae day = Po x Number of Hours = 0.4 x 192 hour : 5) Probability of n customers in the system is given by. P, =p"(I-p} Hence using the above formula, we get the following table 5.2. ‘Table 5.2: Calculation of Probabilities of ‘Customers in System Probabilities P(n) 0.407 0.24 0.144 0.0864 0.05184 131104 ragp Dimbers af canlomers in de Gao; © Average numbers of customers in the tailor’s shop is given by: 1.5 = 2 customers Example 5: A T.V. repairman finds thatthe time he spent on his job has an exponential distribution with mean 0 minutes. If he repairs the set in the order it arrives, and the aznval rate is approximately Poisson, with an average rate of 10 per 8 hour day, what is the expected idle time of fepaitman each day? How many jobs are ahead of average before the job just brought in? Solution: Given, ‘The average arrival rate, = 10 ses/day. The average service rate, 1 = 16 sets, ~ Utilisation factor p = Au = 10/16 = #78 ‘The probability that repairman is ide can be given by: 5_3 p0)=1-p=1-3.3 )=1-p a ++ Average idle time per day = 8 x 3/8 = 3 hours = 4 hour jen T= 14 hour : EE aeerieanll | oomtraias We have to find out th expected umber of sets in e a a8 system in order to determine the eapected noe of o nae 0.1498 head ofthe set just brought in, I is given below: 1 02510 0.2240. 5 2 0.2240. Lak. 0.1255 z 3 oat 0.1680 =p ? 0.0141 .1008 28 ‘Thus the probability that no adjuster is il This means that average weekly time an adjuster spends with claimants = (5/9) x 40 (consider 5 working days within week) = 22.2 hous. (419). W. = Average Time an Adjuster Spends in the System 1 owt WO w)e 1 e-picucp? ete (C~DUCH=ayF 3 SDSS 2 SE a og ag toed a-y(2-5) 3 4 e-n (3-3 Example 25: There are four booking counters in a railway tation, the arrival rate of customers follows Poisson distribut tion and it is 30 per hour. The service rate also follows Poisson distribution and it is 10 customers per \U¢ ? hour: Find the fetowing: i) "Average number of customers waiting in the system, if) Average waiting time of a customer in the system. Solution: The above problem follows (M/MIC): (GD/esfeo) model. Itis given that: Arrival rate 2. = 30 customers per hour, Service rate, = 10 customers per hour Number of booking counters, C= 4 Pois computed as: Sipe pf yr n-(Se a aa) PB (S5+q am) i) Expected waiting number of customers in the queue is given by: 0.03773585 cn L Py (C=) (C= p)* = 0.03773585= 1.5283 Customers =Doe4—3y ‘Therefore, the expected waiting number of customers in the system, Ls=1y+ p= 1.5283 +3 = 4.5283 customers ii) Expected waiting time per customer in the queue is given by: ww, = Et = 1528 = 0,0500434 hour p30 = 3.0566 minutes Expected waiting time per customer in the system, 1 1 0,1509434 hour Ws = Wy +, 20509436475 = 9.0566 minutes. ‘MBA Second Semester (Quantitative Techniques for Decision Making, Ate ips arrive at a port at the rate of 4 Ships sxponential distribution of intra’ ‘a ship occupies a berth for unloagia™& xample 26: jimes. The time @ exponential dist average delay of 5! 14 hours, how many 8 ion with an average of 10 hour ips waiting for berths is to epg te 1 berths should be provided at ty 1 y Port? 1 ui =o per Solution: Here, N=— per hour H=7- per hour a i zeit For multiple server queuing SYStEM —T- <1, to ensue gy the queue does not explode. 5 a cis co2 ne*! Pac 2 First we calculate the waiting time for 5 €=3 =e>4) (al ies wot WwW) op, Which is slightly greater than 14 hours. So three berths (C=) are not enough. Hence, 4 berths must be provided. STC 5.5.1. Introduction ‘mulation is a numerical solution method that seeks wrimal altematives (strategies) through a wial and ext Fiocess. The simulation approach ean be used to study almost any problem that involves uncertainty, i.e., one oF rer pikcision variables ean be represented. by # Probability distibution, like decision making under risk According to Shannon, designing” ‘model of "a experiments with this “Simulation is the process of Teal system and conducting of ‘model "for the purpose understanding the behav ne miei iour (with the limits imposed by 4 sriterion or set of criteria) forsna 7 for the operation of the system”. © in equation @ and zc is always equal t0 1, \S% rq tty een pemendy-tat probability SIbutg, netfee : AAR, osn save ory and Replacement Models (Unit 4) Cost: Canyi fy) Carrying Carrying cost refers to the cost which is 3 due to storing of an i item in aii also popular by the name of holding Sot ta ie a at ton jnventory and the time period until whiek it is sto) if ‘The elements of carrying cost in 1 ; elu ee of ering nae avg The 9 invested in the {iy The costs directly linked/related to stori lighting, racking and palletzation, protect clothing, store's transport eis, ii) The obsolescence cost includes serappi possible rework. a. jv) The deterioration costs and costs i preventing deteriorations. 7. ‘The carrying cost is generally exhibited in the form of rate per unit or as a percentage of inventory value. It i assumed to be es each unit of certain product jnventory store for a unit time the following: unit time. It consists of i) Opportunity Cost: The opportunity cost refers to as the cost showing the retum on investment the firm would eam if the money had been invested in better profit bearing economic activity like in stock market instead of inventory. The cost is usually ‘based on the standard banking interest rate. Warehousing Cost: ‘Warehousing cost refers to the sum paid in the form of fee forthe storage of goods in a third party's warehouse. Ifthe company has its ‘own warehouse, it has to bear: -cost such as space and ‘equipment costs, personnel wages, insurance on savimtories, maintenance costs, EnerBy costs and state taxes etc. Shortage/Stock out Cost: The stock out cost refers io the cost related to not catering to the customer Stock ae oeeates abortage. If there is infernal stock then this means that the production will sop and it a feaalt into wastage of time of Both workers and var niace and it will also Tead to delay in work ee ai ead ie) ian oles Oe ae cle out then there will be Toss in Ses due {o loss of potential sales oF Ioss of custome? goodwill ‘The shortage will arise because of the different kind fferent customers due to which of reaction yr oF sales. In backorder, the there will backorder or lost a sales will be delayed instead of Joss in the sales. into the following: These cde pene a ‘unavailable item from ‘as lost sale. The Jost § profit that would have was done and also the future sale due to shortage. | Back Order Costs: me delay in ne sis leads to adverse en there is any Kind Of wre not easily exchan£eah'™-, 14, Jeads to fines. ii) sales occurs * amount and time at wi 17 4) Purchase Cost: It is also known as nominal cost of of the item which inventory. This is the purchase price is purchased from extemal sources and the cost of the production if the items are made inside, (he vrganization. Purchase costs depend on the quantity ¢f stens purchased, Usually there isa situation where it ay be specified like the unit price of the product iS [40 for an order upto 50 units and £49.50 if the order is more than 50 units. 41.4. Meaning of _ Inventory Management Inventory costs are _generall concems. A firm generally inv’ resources in its inventory. In constitutes about 90 per cent o It's important for a firm to properly manage its inventen Thventory management implies proper planning related purchasing, handling, storing and accounting, of goods. Faventory management decides, “what to purchase, how much to purchase, where to purchase from, where 0 store, etc.” Inventory management also ensures that the firm vvntaine optimum level of inventory, minimising the Chances of over or under-stocking. Over-stocking may Gause cash crunch whereas under-stocking may cause iterruption in production process. VERE a 4.2.1. Introduction Inventory models are used for estimating the amount of inventory required with the firm by the help of financial equations. The basic problems in inventory models are the quantity and timing of orders. It helps in estimating the hhich new inventory should be order. Itis done for providing the timely delivery and accurate ‘amount of product for the customers. ly very high for business ests a substantial amount of ‘many cases, inventory cost the total working capital. of uncertainty with lead-time or demand affects the inventory model of an organisation. The objective of jnventory model is to estimate the accurate amount of inventory to be stored for minimizing the total inventory Costs. I also helps in balancing the different types cost like purchase cost, ordering cost/set-up cost, carrying cost and stock-out cost, etc. ‘The level ‘There are various models for inventory management, each of which attempts to reduce the overall inventory cost by Striking a balance between various components of cost, viz. purchase cost, carrying / holding cost, ordering cost Stockout cost, ete. Such models are broadly categorized as independent demand type or dependent demand (ype. Under the independent demand model, the demand of 2 specific item of inventory does not depend wpon the demand of other items of inventory, whereas under the dependent demand model, the demand of a specific term Ofinventory depends upon the demand of other items of 180 MBA Second Semestet( 2) Faulty Basic Information: Two main ‘components on which the calculations of EOQ are based are ordering cost, and the carrying cost. So, EOQ can be ascertained only if comect figures of ordering cost and carrying cost are available. Practically this may not be possible as they Cannot be calculated exactly all the time. This may vary from product to product and thus in many cases the formula will not give true results, 3) Costly Calculations: Since estimation of cost of ordering and cost of carrying is not easy, it requires services of Professionals. Simple calculations are time consuming and complex formulae are rather expensive. In most of the ccases the cost involved exceeds the benefits derived and value for money is not achieved. 4) No Formula is a Substitute for Commonsense: ‘Sometimes the underlying conditions are such that no formula is as useful as the commonsense. Majority of the businesses today rely on their instincts and past experience for such a judgment, 5) EOQ Ordering must be Tempered with Judgment: Few corporate operating goals must be observed while preparing inventory control. These goals may sometimes contradict with the ordering but still emphasis should be given to these goals. Following might be included in EOQ restrictions: i) Those items that undergo constant changes like technological should not be put under the ambit of EOQ. ii) Items having a lesser shelf life should also be avoided under EOQ method, iif) Sales of items that is not constant throughout the year also does not fit under the concept of EOQ, iv) EOQ cannot be followed in case of items which are critical in nature and often experiences shortage. [Link]. _ EOQ Model without Shortages EOQ for Simple Inventory Model with no Shortages and Instantaneous Replenishment This model is characterized by uniformity in the demand and prompt production. It envisages placing of order of same size at periodical intervals. Supply of the items ordered is made promptly and they are consumed also at a constant rate. There is no change in purchase price per unit, notwithstanding the size of a specific order. 2D0 B0Q(@)= 5 Where, D= Annual Demand in units O = Ordering Cost per order/set-up cost ‘arrying Cost per unit per year P= Purchase Price per unit Q=Ordersie ‘Assumptions of the Model ; OQ model without shortages is founded on certain underlying presumptions, which are as following: Inventory level (quantitative Techniayes for Decision Makin rh for the i sets a, definite demand ini 1) These ox panged and unbroken over = emai ce the time in-betw ime refers to the tim rnp The lead raving the 2008S i stock ready jy the order and own tal. I implies that igo dee ato, te supply of ordered items i ine i , the supply ¢ ithout any Toss of times ' vino ordering costs and CAITYiNg costs eq, 3) Per net imespective of the quantity orja voerned the ordered quantity 1S within thes Eecided (mutually agreed) ae ice of the items does not undergy ° ee “iecount is allowed even in the pel bulk purchases; and . S ly is expeditious, whenever the level of sy 9) Resmi ae instances of surplus or shortage of stock. under the EOQ model without shortages may displayed as under (with the presumptions indicated in foregoing points): 2) Maximum Qe“ inventory Teel Avenge invey level, Q2 a E L x Reorder Tine ‘igure 4.2: Inventory under the Classical EOQ Model In the above figure, if we start with stock at ‘Q’ level ot time at “0", the stock would be consumed at the rate ‘d! unit per day. As the lead time is presumed to be zer0,8 new order would be required to be placed and supplies Would be made at point ‘Ty’. Next order would be requted to be placed at point ‘Ty’, Jn ease of a lead time “L” » the first order would be requirel to be placed at point ‘AY, when the stock level is at a poitt just sufficient to last during the lead period, By the tim? fresh supplies arrive, that stock would have beet consumed. This is known as reorder level or reordet Pe (R). In other words, The point at which the store Keeper makes a fresh request for the purchase is known the reorder level. Generally, it lies between the maxi and the minimum level, Reordering Level = Reorder period Maximum Consumption x Maximst ‘The next order needed tobe placed at point ‘B ‘The gap of time between two or ‘Ty’ and ‘T’) is terme defined as the time taken in ordering points (‘A’ and "8 ied as Inventory Cycle. It Utilizing the whole lot of ite Second Semester (Quantitative Techniques for Decision Mike ay MBA Second Ser Step 2: Compute Q3 . Here, the highest discoun, Waly, is P,=[Link], a 2D0 _ [2x6,000x600 eL : Here, Q}

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