& How mult to odes

ROp-When to oldn D =
Annual demand

Inventory management a
=

=
20X6XT2 = 6240

20

Td= 6

• During her summer internship at a beverage company, a student of Balicha campus

I
was assigned a project to check and improve the current practices of inventory L =

management followed by the company at various retail outlets. While going through S =
50

the historical data, she observed that a retail outlet in Lake City places an order of
400 units of soft drink when the stock level drops to 90 units. The outlet currently
-

does not carry safety stock.

-

Cost = 60

• Further, the data shows that the outlet faces normally distributed demand of soft Rop 90
Curt
drink with mean 20 units per day and standard deviation 6 units. The outlet operates
=

200
six days in a week (52 weeks in a year). Once the outlet operator places an order, the
- -
9 =

distribution team takes 4 days to deliver the ordered quantity. The company incurs 50
- -

rupees per order as the transportation cost and a monthly holding cost of 2% on the
cost of per unit soft drink. The per-unit cost of the soft drink is 60 rupees. The Tayet
company has asked every outlet to ensure 95% service-level. SLI 97

unit in the
5 %
out-cost incur to keep one
Rob
holding Stockout =

for year
system a
221-645
i =
2% /mote/ units = 03X122
·

2y/year/write
H = 24 X60 = 14 .

4/bealon't
 -

5
What is the current total cost?
Annual Cost
+ Annual Odiy cost

Total cost 2
holding
↓ sacert

cost =
Auge Irontory X Holdin Costlunit/year
ep1- find Annual hold)
Q
= Look = 200

Cir Any inventory-

2880
Cit = Plaxha
Annure Holdy

find Annul
Ondenly
Cost = Number occleus /yearx Ondry cost
loed
Step-

cic - Nor
of Orders /years
Annual demand /order quantity
26240/200 = 156 ordes

Orderly
Annal cost = 15 6-
X50 = 780

&
What is the current total cost?
Total Holding
cont to 35X
Holding Cut

Total Total
Ordering Cont ↑

Cost =

↓ 2880 ↓
?
I zo -

S52 Rop-Mddes

L Xi
Mdelt
T

I yX20

I so with

to-go =
10 units
see

Total but 780 + 2880 + 10x14 4 . = 780 + 2880 + 14=

3804t
=

6240 374700
cost of material - 60 X =
 Rop = 90

lead time to SS
=>
Augocorruption dung
SS -
ROP-Mddet

!!!"#
What is the current service level of the outlet?
Calculate Z
!
step -

Rop = 10

2Madea -
SS = 90-80 = 10

ii Madiy = (x = Yxz = 80

N X Mxx 12
Oddtz od2 =

220833
 20-8

81 b
-

k =2

* &

T -

5 * ⑫
What is the current service level of the outlet?
Calculate Z
!
step -

ze
ope ROP-MdAL
)
=
SS =

= 10

ii Madiy = (x = Yxz = 80

# #xx 12
Oddtz odz =
x
2

220
.
833 [ho to table]
-

Sh = 79 .
67 %
-

Stockout Robe 1 -

3962 = 0 .
2033
0 .
What changes should she recommend at the
outlet?
F
How much to order
: FOO = &

+ IS
order = Rop = Mdaet
When to
What changes should she recommend at the
outlet?
Use Continuous Review
system

-Find
How mun to order
EO0-to-co
ROD1 Mode + SS
Steps -
when to order
1 80 + Ex Jadet

I 80 + 1 .
64rX12

T 99 -
74 Units
What changes should she recommend at the
outlet?
Use Continuous Review
system

-Find EOQ
: 208 1

Find ROP =
Modest &S
Step-
I

(i) =
Meant = So

(ii)-s =
z x
Fans Tdace = NTX od
= Nx6
For anx. = 22 1645 =
12

S= 1695X12 19
= -
74
What is the annual inventory carrying cost of
the outlet?
Annal but t SS cost
Vary
Inventory Cary Est =

=
P(xH + SxH

=
208-16/2 x 14 + 19 77X 1
.
.

2 1783 ·
0 Fr
-
What will be the annual total cost if the outlet
implements her recommendations? 12 = 9 T

(iv Total C17 of

Orders Number
=

order
-

Ordry cost/order
x

=
Pla X to

I
6240/208 -
107 X No

2 1498 .
79

1783 015 + 1498-79

Total lat
.
=

= 3281 -
845
Process analysis
• Balicha Insurance Company processes insurance policies in the following manner:

• First distribution clerks distribute files to the underwriting station. In each file,
there are 5 policies. It takes 20 mins to distribute one file. The underwriting team
underwrites one policy in 12 min. then it is sent to rating. Rating of each policy
takes 8 min. 10% of the rated policies are evaluated for error and then it is sent to
the policy writing team (Assume the policies go directly to policy writing are
error-free). The rest directly goes to policy writing. It takes 5 min to check for
errors. Policy writing takes 10 min per policy. You have 2 clerks at the distribution
station, 5 underwriters, 4 people for rating and 2 people for error checking and two
policy writers. Assume you have - 8 hrs of working time per day.
--
Comin/file 12m N
umin/policy
 of the
Homly capacity proces

What is the hourly capacity of the entire -

Is 12 / hr

process? 20%e 0 - 9

Bottlene

A D ⑪
10% Error 0 -1 Policy
Distribution Underwriting Rating
Or f checking writing
T
- - 0-950 11.

Distribution Underwriting Rating Error-checking Policy writing

Processing Y 8 5 18
12
time/policy
5 Y 2 2
Number of workers 2

Go

A
Capacity the TX
=
301h Fox =
Cr x = 30
Loxz
=
2y
10x12
H D 0-1 o
-

f
Demand ↑
0
Yo Yar %24 Yiz fright]
.

Implied Utilization
A
Yur
How many policies can be processed per day?
Wom ; Nunz S

12
Howly Capacity
=

96 policie
Policies
(day
8XI2
/day
: =
Calculate utilization of each activity if the distribution
clerks are currently sending 30 policies per hour.
90% - 22 V
-

2
V

25
za 30
In woy. Error 2 5 -
Policy
Distribution Underwriting > Rating
:

checking writing
28

Flow 2 ↑
2 EG
lett= Mis &Dema, Capan it , Jot]
-

zur-
-
Raty
2
Distribution Underwriting Rating Error-checking Policy writing

Processing 18
Y 12 8 5-
time/policy

Capacity 30
= 38 24
&
12

2 5
Demand
-

30 30 . 25
.

*
&

Flow rate from

30
Min G25, so men Gar, zo] min
Ganz-ry 12
each activity -
= 2T 22 T 22 - 1
&

=
LIV

wet - -
-

Utilization - -
I 2y
loox
.

Ev
 Loade

• If you increase the evaluation rate to 90% and 70% of the policies
-

reviewed for error are rejected, What is the Utilization of the error
checking station? (Assume the policies go directly to policy writing and
are error-free)
 How many error-free policies does Balicha Insurance
Ihr
currently process per day in this new scenario? Lot ,
9 25 .

~ 2-P

925
30 20 2m 90% Error Policy
Distribution Underwriting Rating
- ⑫j checking
30%
gar writing

· 70 %
[lt-ir]

t
Policies from Eas
dig
to
Rejected
Boling waiting
z
22-5-15-71
Policies
=
6-7P Rejected
setty 15-74

Distribution Underwriting Rating Error-checking Policy writing

Processing
4 12 8 5 10
time/policy

Capacity 30 25 S
30 24 12

Demand 30
3
2p 22-5
9 25
-
 What is the Utilization of the error checking station? -
22 P

2y
-

30 30 250 25 Lz Error Soye Policy a-zp

Distribution Underwriting Rating
checking Guzp writing
(20) (2r( (201 (24) (12(
20%

Rejected

Distribution Underwriting Rating Error-checking Policy writing

Processing
4 12 8 5 10
time/policy

Capacity 30 25 30 24 12

Demand 30 25
30 25 22.5 9.25

Flow rate from 30 Cr 25 C2-P 9- 2p

each activity

Utilization = A A 5/6 22-1/2y 9-20/12

spany W
 Worhinam = 8 his

Queuing *rival

procery
Rate

times
=

=
20

2
/
min
X009 = 18/m

service rate : 30 /her

• The college canteen is open from 9 am to 5 pm. The students arrive at the
canteen at the rate of 20 students per hour. 90% of the students who arrive at the
canteen buy snacks.
-

• It takes 2 minutes to serve a student. The canteen owner reads Chetan Bhagat's
novel and it takes 5 minutes on average to read one chapter Assuming service
time and interarrival time follow the exponential distribution answer the
following:
• a) How many chapters can be read in one day? Augo Idle time in day
. a

• b) How long on average does a student spend in the canteen?

Omin
=
18 /he Chapte ready
1

u= 30 Ihr
 in (Shul ?
Q -How chapters you
can read one
day
may
S Utilization Prob (serves in bury]

Prob (Seve in idleJe 1- Utilization

40 %
Prob [Idl =
10 %
Example I
-
Utiling =

Worki hour : 60 min

Lumin
60 Utilizaton
Argo time =
X
buy
=

60x Chetilimton) 36 min

time
=

Age idles
 in (Shul ?
Q -How chapter you
can read one
day
may
idle time .
8- They can read the novel
during
idle.
whey they
are
time
we do
need find the

C 1
/min
=

u =

10 18 The
She
working hour :
-

8 X60
0 .

-
M = 30/he
2 so The

idle 10 Plowner is
bany]
Probabilit owner in =
-

>
-
flow rates X
-
- Z

Utilization I 1 =
0 .
6
capana
MC

MXC

P[ide] =
1-0-6-0 -y

time ownes is idea =

8X PCideT = 8 X0-y
Aug -

2 3 .

2 has on 192 min

 in (Shul ?
Q -How chapters you
can read one
day
may
S lead a
in
chapter =
Time to

19 2
Total Idle time =

-
min

of chapters 92 2 38 y dept
= -

Number
 in the Cantern
sped
student ,
I How much time a

procery
time

waiting
time time -
Total spend=
fine (pl = Smit
↓= 18/he 12 301 he
peocerning
number of serves (C) =
f
CVp = 1
CVa = 1

waiting ve Cugl = VXUxT

V
Cup
=
-

= f
15

v
+- c =

-S

T
= I I =
2

X6 z3 min
1X1 -
-

Wq =
 in the Cantern
sped
student ,
I How much time a

procery
time

waiting
time time -
Total spend=
fine (pl = Smit
↓= 18/he 12 301 he
peocerning
number of serves (C) =
f
CVp = 1
CVa = 1

waiting ve Cugl = VXUxT

1 5 xL
21 x
.

·
= Smin

in = ↑ min
>
-

Ange time spent

contem
(Wsl Wgtp

in Conten (a) WSX A

Aug number of students
=

.
-

=
1 5
x18 = -

Aug number of etuded

in
quee (Lat =
Wqxx = x 18 = 0 .