National Technological Institute of Mexico in Celaya

Business Management Engineering

Production Management

Teacher: Maleni Triana García

Team:
Irma Carolina Mancera Núñez
Jorge Alberto Hernández Hernández
Salvador Cantor Freyre
Jorge Tulio Vázquez Cano
Table of contents
Cantidad de Pedido Fija................................................................... 3
FIXED PERIODS WITH SAFETY INVENTORY................ 5
Fixed period modelo .8
Quantity discount model ............................................. 11
ABC Classification .......................................................................... 17
 Fixed Order Quantity
The fixed order quantity models aim to determine the specific point (R).
What will be ordered, as well as its size (Q).

1.-In a hardware store, the independent demand for certain bolts that
is commonly used is 500 units per month. The ordering cost is
30 dollars per order placed. The maintenance cost is 25% per year and
Each unit has a cost of .50 dollars. According to the economic quantity.
From the order, what should be the lot size for this product?

∗ 2 2∗ 30∗ 6000 = 1697

= √ = √
0.25∗ 0.50

2.-Ray's Satellite Emporium wants to determine the best order size for its
the best-selling antenna (model TS111). Ray estimated that the annual demand
for this model it will be 1,000 units. Its cost to handle one unit is
$100 per year per unit and estimates that each order costs $25. With the EOQ model,
How many units should Ray order each time?

∗ 2 2∗ 1000∗ 25
= √ = √ = 23
100

3.-The part number XB-2001 has an independent annual demand of

repair of 4,000 units, a machine setup cost of 100 dollars,
a maintenance cost of 30% per year, and an item cost of 266.67
dollars. The production facilities are open five days a week and 50
weeks per year, totaling 250 productive days annually. Calculate Q.
with the formula for the economic order quantity.
 ∗ 2 ∗ 2∗ 4000∗ 100
= √ = = √ = 100
0.3∗ 266.67

4.-The Always Fresh Grocery Store carries a specific brand of tea that has the
following characteristics: Sales = 8 boxes per week Ordering cost =
$10 per order Maintenance fee = 20% per year Cost of the item = $80 per
box.

a)How many boxes should be ordered on each occasion?

b)What is the annual cost of ordering and maintaining tea?

a)
∗ 2 2∗ 416∗ 10
= √ = √ = 23
16

b)
= ∗ =416∗ 10 = 18
23

5.-The local Toyota dealer must decide the quantity of shock absorbers.
spare of a specific type that must be ordered for the repairs of the
Toyota cars. These shock absorbers have a demand of four.
units per month at a cost of 25 dollars each. The maintenance fee is
30% per year and the ordering cost is 15 dollars per order.
a)What is the economic amount of the order for this item?

b)What is the annual cost of ordering and maintenance for this part?
c)Which el coI amtosuch
dtheIInventory?
a)
∗ 2 2∗ 48∗ 15
= √ = √ = 14
0.30∗ 25
 b)
48
c) ∗ = ∗ 15 = 52
14
48 14
= + ∗ + ∗ = ( 48)(25 )+ ∗ 15 + ∗( 0.30 )( 25 )1304
2 14 2

6.- Find the economic order quantity, the reorder point, and the cost.
total dhe I andOntariodatwo: Dannual claim ) = 1,000 units daily demand
average () = 1,000/365 Order cost (S) = 5 dollars per order Cost of
1.25 dollars per unit per year
Cost per unit (C) = 12.50 dollars.

∗ 2 2∗ 1000∗ 5
= √ = √ = 90
1.25

= 2.7397∗ 5 = 13.69

= +∗ +∗ (
= 1000 )(
12.50 +1000
) ∗ 5 +90∗ 1.25 = 12611.80
2 90 2

FIXED PERIODS WITH SAFETY INVENTORY

Dunstreet's Department Store wants to establish an order policy for inventory with a probability of
95% chance that it will not run out. To illustrate the recommended procedure, use the ordering policy as an example.
white sheets. The demand for white sheets is 5,000 per year. The store is open 365 days a year.
year. Every two weeks (14 days) the inventory is counted and a new order is placed. The sheets take 10 days to
arrive. The standard deviation of the demand is five per day. Currently, there are 150 sheets available.
How many sheets should I ask for?
5000
= = 13.69
ℎ 365
 + = √(14+ 10)52= 600

= ( + )+ ( + )− ( + 10+ 1.645
= 13.69 14 ) 600−( 150 )= 1,315.56
≈ 1,316

Lieutenant Commander Data plans his monthly trip (every 30 days) to Gamma Hydra City for
pick up a supply of isolineal modules. The trip will take about two days. Before
exit, Data places the order at GHC Supply Store. Data uses the modules with an average index of
five a day (seven days a week) with a standard deviation of demand of one
day. It needs a service probability of 98%. Currently, it has 35 modules in
inventory, how many should he ask for?

+ = √(2+ 30)12=5.65

= ( + )+ ( + )− ( + 2+ 2.0538
= 5 30 ) 5.65−( 35 =) 136.6≈ 137

The daily demand for a product is 100 units, with a deviation

standard of 25 units. The review period is 10 days and the delivery time
It is six days. At the time of the review, there are 50 units in stock. If
wants a service probability of 98%,
How many units should be ordered?

+ = √(6+ 10)252= 44.72

= ( + ) + ( + )− ( + 6+ 2.0538
= 100 10 ) ( 50 =) 1,641.84
44.72−
≈ 1,642

[Link] daily demand for a product is 60 units with a standard deviation

of 10 units. The review period is 10 days, and the delivery time is two.
days. At the time of the review, there are 100 units in stock. If you want
a service probability of 98%, how many units should be ordered?

+ = √(2+ 10)102= 34.64

 = ( + )+ ( + )− = 60 2(+ 10+ 2.0538
) ( 100 =
34.64− ) 691.14≈ 692

3. University Drug Pharmaceuticals orders its antibiotics every two weeks (14 days)
when a salesperson from one of the pharmaceutical companies passes by. Tetracycline
It is one of the most important antibiotics, with an average daily demand of 2.
000 capsules. The standard deviation of daily demand is derived from the analysis
from the recipes of the last three months and it is 800 capsules. The order takes five
days to arrive. University Drug wants to cover 99% of the prescriptions. The salesman has just
arrive and at that moment there are 25,000 capsules in existence. How many capsules are there?
what to ask?

+ = √(14+ 5)8.88882= 38.7453

= ( + )+ ( + )− ( 2.32 38.7453−
= 2000 19+ ) ( 25000 = )13,089.889
≈ 13,090
Fixed-term model

The annual demand for a product is 13,000 units; the weekly demand is
of 250 units with a standard deviation of 40 units. The cost of making a
The order is for $100 and the delivery time is four weeks. The annual cost for
inventory management is $0.65 per unit. To offer a probability of
98% service, what is the economic order quantity and what should be the point
about reordering?

2 2 ( 13,000100
)( )
∗
= √ = √ 2,000
0.65

=√ 2 equals
√ ( 4 )402 = 80

= + =( 250)(4 ) +( 2.05380)( = )1165

The annual demand for a product is 15,600 units. The weekly demand is 300.
units with a standard deviation of 90 units. The cost of placing an order is
$31.20 and the time to receive it is four weeks. The annual management cost of
Inventory is $0.10 per unit. Find the reorder point and the necessary policy.
to have a service probability of 98%.

∗ 2 2 ( 15,60031.20
)( )
= √ = √ = 3120
0.10

=√ 2= √4(90)2= 180
= + =( 300)(4 ) +( 2.053180
)( = 1570
)
Retailers Warehouse (RW) is an independent supplier of household items for
department stores. RW aims to stock enough items to offer a
Service probability of 98%. One of the items stored is a set of knives.
of stainless steel. The demand (2,400 sets per year) is relatively stable during
all year round. Whenever new stock is requested, a buyer must ensure that
the figures are correct regarding the available inventory and then a new order is placed
by phone. The total cost of placing an order is around $5. RW thinks that the
maintenance of inventory and the payment of interest on the capital borrowed,
insurance, etc., add up to an annual maintenance cost of $4 per unit. The analysis of the
previous information shows that the standard deviation of retailer demand is
of more or less four units a day for a year of 365 days. The delivery time
The order is for seven days.
a) What is the economic order quantity?
b) What is the reorder point?

2 2(400)(5)
∗
= √ = √ = 32
4

=√ 2=
√7(4)2= 11
2400
= = = 6.5753
ℎ 365
= + =( 6.57537)(9.05311
)( = 69)( )
GentleBen's Bar and Restaurant uses 5,000 quarter bottles of an imported wine.
Year. The sparkling wine costs $3 per bottle and is served only in full bottles because
loses the bubbles in a short time. Ben thinks each order costs him $10 and the costs
The maintenance costs are 20% of the purchase price. An order takes three to arrive.
weeks. The weekly demand is 100 bottles (almost two weeks a year) with a
standard deviation of 30 bottles. Ben would like to use an inventory system that
minimize inventory costs and offer a service probability of 95%.
a) What amount of money should Ben ask for?
b) At what inventory level should an order be placed?

∗
2 2(5000)(10) = 409
= √ = √
0.6

0.20∗ 3 = 0.6

=√ 2= √3(30) =252
Quantity discount model
➢ Varies according to the size of the order
➢ Discrete change instead of unitary
➢ Calculate Q for each possible price and check if the quantity is feasible.
➢ If Q is lower or higher than the range then IT IS NOT FEASIBLE

A company can acquire a particular raw material at three prices, depending on

the order size:
Less than 100 pounds: $20 per pound
From 100 pounds to 1,000: $19 per pound
$18 per pound
The cost of placing an order is $40. The annual demand is 3,000 units.
The cost of holding in storage is 25% of the material price. What is the quantity?
economics of ordering for each purchase?

2 ( 3000 )40
1.− √ 230.94
. 25 × 18

( root of )23000
Square 40
2.− = 224.78
. 25 × 19

(
√23000 )
40
3.− 219.08
. 25 × 20

[Link] Incorporated (CUI) produces copper contacts that are used in switches and
relays. CUI needs to determine the order quantity Q to satisfy the
annual demand at the lowest cost. The price of copper depends on the quantity
request. Below is the discount price and other details for the
problem:
Copper price $0.82 per pound up to 2,499 pounds
$0.81 per pound for orders between 2,500 and 5,000 pounds
$0.80 per pound for orders over 5,000 pounds

Annual demand 50,000 pounds per year

Cost of holding inventory 20% per unit per year of the price of copper
Order cost $30
What quantity should be requested?

2 ( 50000 )30
1. − √ = 4330.12 = 4331
. 20 × .80

2 ( 50000 )30
2.− √ = 4303.31 = 4304
. 20 × .81

2 ( 50000 )30
3.− √ = 4276.99 = 4277
16.4

3. Bell Computers buys integrated circuits at $350 per unit. The cost of
the holding cost is $35 per unit per year, the ordering cost is $120 per order,
and sales remain stable at 400 per month. The company's supplier,
Rich Blue Chip Manufacturing, Inc. decides to offer price concessions with the
intention to attract larger orders. The pricing structure is shown at
continuation.
Pricing structure for Rich Blue circuits:
1–99 units $350
100–199 units $325
200 or more units $300
a) What is the optimal quantity to order and the minimum cost with which Bell
Computers order, buy, and maintain these integrated circuits?
 2 ( 4800 )120
1. − √ = 10.47 = 11
35 ×300

2 ( 4800 )120
− √ = 10.06 = 11
35 ×325

2 ( 4800 )120
3.− √ = 9.69 = 10
35 ×350

b) Bell Computers wants to use a holding cost of 10% instead of the cost of
maintain a fixed amount of $35 used in section a. What is the optimal quantity to order?
And what is the optimal cost?

2 ( 4800 )120
1.− √ 195.95 = 196
10 × 300

2 ( 4800 )120
2.− √ = 188.27 = 189
. 10 × 325

2 ( 4800 )120
3.− √ = 181.42 = 182
10 × 350
4. Chris Sandvig Irrigation, Inc. summarized the price list from four suppliers
potentials of an underground control valve. See the following table. The use
annual is 2,400 valves; the ordering cost is $10 per order and the costs
Annual inventory holding costs are $3.33 per unit. Which seller should
choose and what is the best quantity to order if Sandvig Irrigation wants to minimize
its total cost?

Seller A

( )
− √ 2 2400 10 = 21.65 = 22
3.33 times30.75

2 ( 2400 )10
2.− √ = 21.51 = 22
3.33 times31.15

2 ( 2400 )10
3. − √
3.33 ×32.35 = 21.10 = 22

2 ( 2400 )10
4.− √
3.33 ×33.55 = 20.72 = 21
 2 ( 2400 )10
5.− √ = 20.36 = 21
3.33 ×34.75

2 ( 2400 )10
6.− √ = 20.29 = 21
3.33 ×35

Seller B

( )
− √ 2 2400 10 21.73 = 22
3.33 ×30.5

2 ( 2400 )10
2.− √ = 21.35 = 22
3.33 ×31.60

2 ( 2400 )10
3.− √ 20.96 = 21
3.33 ×32.80

2 ( 2400 )10
4.− √ = 20.59 = 21
3.33 ×34

2 ( 2400 )10
5. − √ = 20.26 = 21
3.33 ×34.75

Seller C

2 ( 2400 )10
. −√ = . =
3.33 ×October 31

2 ( 2400 )10
2.− √ 21.06 = 22
3.33 ×32.50

2 ( 2400 )10
3.− √ = 20.66 = 21
3.33 ×33.75
 2 ( 2400 )10
4. − √ = 20.44 = 21
3.33 ×34.50

Seller D
2 ( 2400 )10
1.− √ = 21.56 = 22
3.33 ×31

2 ( 2400 )10
2.− √ = 20.89 = 21
3.33 ×33

2 ( 2400 )10
3.− √ = 20.49 = 21
3.33 ×34.25

2 ( 2400 )10
34.25 √
114.4225
= 20.49 = 21
ABC Classification
• Pareto Principle
• Top A products (80%)
• Important Product B (15%)
• Product C less important (5%)

1. Alpha Products, Inc. has a problem managing inventory. There is no time.

enough to dedicate to all the pieces equally. This is a sample of some of the
pieces in stock, in addition to the annual use for each expressed in volumes of
dollars.

Pz Annual Use ($) % Concentrated

q 90000 23.1303007 23.1303007
k 80000 20.5602673 43.690568
f 68000 17.4762272 61.1667952
32000 8.22410691 69.3909021
n 30000 7.71010023 77.1010023
e 24000 6.16808019 83.2690825
g 17000 4.3690568 87.6381393
c 14000 3.59804677 91.2361861
r 12000 3.08404009 94.3202262
a 7000 1.79902339 96.1192496
3000 0.77101002 96.8902596
j 2300 0.59110768 97.4813673
d 2000 0.51400668 97.9953739
o 1900 0.48830635 98.4836803
i 1700 0.43690568 98.920586
m 1100 0.28270368 99.2032896
b 1000 0.25700334 99.460293
h 900 0.23130301 99.691596
p 800 0.20560267 99.8971987
l 400 0.10280134 100
TOTAL 389100

2. DAT, Inc. produces digital audio tapes for the consumer audio division.
DAT does not have enough personnel in its inventory supply section to control
all the items in stock, so he asked him to determine an ABC classification.
This is a sample of the inventory records:

Pz Annual Use ($) % Concentrated

5 1008000 55.4455446 55.4455446
7 72000 3.96039604 59.4059406
8 30000 1.65016502 61.0561056
3 288000 15.8415842 76.8976898
4 264000 14.5214521 91.4191419
10 24000 1.32013201 92.7392739
1 50400 2.77227723 95.5115512
9 60000 3.30033003 98.8118812
2 9600 0.52805281 99.339934
6 12000 0.66006601 100
TOTAL 1008000

3. In the past, Taylor Industries used a fixed-period inventory system that

It involved counting all the inventory items every month. However, the costs of
rising labor costs force Taylor Industries to explore other ways to reduce the
amount of labor that participates in the warehouses, but without increasing other costs,
like the storage ones. This is a random sample of 20 of Taylor's pieces.
 a) What would you recommend to Taylor to reduce their labor cost? (Illustrate your
response with an ABC plan.
b) Piece 15 is crucial for continuous operations. How would you recommend
classify it?
Like C

Pz Annual Usage ($) % Concentrated

18 61000 24.0963855 24.0963855
4 50000 19.7511357 43.8475212
13 42000 16.590954 60.4384752
10 15000 5.92534071 66.3638159
11 13000 5.13529528 71.4991112
2 12000 4.74027257 76.2393838
8 11000 4.34524985 80.5846336
16 10200 4.02923168 84.6138653
14 9900 3.91072487 88.5245902
5 9600 3.79221805 92.3168082
17 4000 1.58009086 93.8968991
19 3500 1.3825795 95.2794786
20 2900 1.14556587 96.4250444
3 2200 0.86904997 97.2940944
7 2000 0.79004543 98.0841398
1 1500 0.59253407 98.6766739
15 1200 0.47402726 99.1507012
9 800 0.31601817 99.4667193
6 750 0.29626704 99.7629864
12 600 0.23701363 100
TOTAL 389100