PRODUCTION AND
OPERATIONS
MANAGEMENT
Ch.13: Inventory
Management
SUMMARY
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BASIC POINTS
HOW SHOULD WE MANAGE STORED
PRODUCTS AND PARTS?
 Definition of inventories, types and control
 Costs
• Holding
• Ordering
• Setup
 Management models: Fixed order or
period
 EOQ, POQ, Quantity discount
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QUESTIONS



Discuss the advantages and disadvantages of maintaining
large amounts of inventory.
What is economic order quantity? What are the
assumptions of EOQ?
If the annual demand for a product is 3,50,000 units. The
annual carrying cost rate is 25 percent of the cost of the
unit the product costs Rs 14.75 per unit to purchase, and
each time the product is ordered the related ordering cost
is Rs 53.00.
• i) What is EOQ?
• ii) What is total cost at EOQ?
• iii) How much would be the total cost if the order
quantity is 2500 units due to standard packing?
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
QUESTIONS
(II)
The planning and scheduling of production only against specific
production order is
• Make-to-Stock
• Make-to-Order
• Assemble-to-Order
• Mass Customization
Mohan is a confectioner. He buy plastic boxes in bulk and uses
them to pack his chocolates. His annual requirement of boxes is
1,200 and each box costs Rs.30.The ordering costs are Rs.10 per
order and carrying costs are 20%. How many boxes should he
order at a time so as to minimize the
costs?
The supplier of boxes offers the following price breaks:
Order Quantity Price (Rs./Box)
Less than 100: 30.00; 100-199: 29.60; 200 and above 29.75
What should be the order quantity?
QUESTIONS (III)

The raw materials, components, completed or
partially completed products, and pieces of
equipment a firm uses are often referred to as
•
•
•
•

inventory.
order quantities.
production.
outputs.
Procurement is another name for?
•
•
•
•
Consumption
Disposition
Budgeting
purchasing
What if




Let’s try to optimize the amount of groceries that
you store at home
What are the costs involved?
Is there an optimum amount of goods to be
stored?
NOTE:
• You order goods going to a grocery that takes
you an hour to reach
• You have a cupboard in your kitchen that can
hold only 10 Kgs. of goods
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CAN YOU IMAGINE A LIFE
WITHOUT ENGINEERS?
WELL, JUST SEE:
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Watch what you have
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What if




Let’s try to optimize the amount of groceries that
you store in your larder
What are the costs involved?
Is there an optimum amount of goods to be
stored?
NOTE:
• You order goods going to a grocery that takes
you an hour to reach
• You have a cupboard in your kitchen that can
hold only 10 Kgs. of goods
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