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Operation Management

The document discusses inventory control and aggregate planning. It covers topics like economic order quantity (EOQ), reorder level, material requirements planning (MRP), level strategy, and chase strategy. Formulas are provided for calculating things like EOQ, reorder level, total costs, number of workers required, and more.

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Sanket
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43 views

Operation Management

The document discusses inventory control and aggregate planning. It covers topics like economic order quantity (EOQ), reorder level, material requirements planning (MRP), level strategy, and chase strategy. Formulas are provided for calculating things like EOQ, reorder level, total costs, number of workers required, and more.

Uploaded by

Sanket
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Inventory Control

1. EOQ

Given data:
Demand/Year (D)
Ordering cost/batch (A)
Purchase Price (c)
Inventory cost/Year (a)
Calculate:
2𝑥𝐷𝑥𝐴
 EOQ (Q) = √
𝑎𝑥𝑐

𝐷
 No of order/Year =
𝑄
 Total Cost = Ordering Cost + Inventory carrying cost + Material Cost
𝐷𝑥𝐴
Ordering Cost =
𝑄
𝑄𝑥𝑎𝑥𝑐
Inventory Carrying Cost =
2
Material Cost = c x D

 % Discount on cost price (Cn) if only ‘y’ orders are allowed to place (Total cost remains
constant)
𝐷
Q1 =
𝑦
𝐷𝑥𝐴 𝑄 𝑥 𝑎 𝑥 𝐶𝑛
Total Cost = + + Cn x D
𝑄 2
𝑐−𝐶𝑛
% Discount = 𝑥 100
𝑐

2. Reorder Level

Given Data;
Demand/year (D)
EOQ (Q)
working days/year (N)
Lead time (L)
Calculate:
𝐷
 Consumption/Day =
𝑁
 Reorder level = Consumption/day x L

3. Material requirement planning (MRP)


2𝑥𝐷𝑥𝐴
i) EOQ (Q) = √ ……. When you are ordering from outside
𝑎𝑥𝑐
2𝑥𝐷𝑥𝐴
ii) EBQ (Q) = √ 𝑑 ……. When you are In-house producing
(1− )𝑥 𝑎 𝑥 𝑐
𝑝

𝐷
iii) d = 𝑁

iv) MRP for EOQ component


Total Cost = Ordering Cost + Inventory carrying cost + Material Cost
Ordering Cost = A (If there is an order, irrespective of no of batches)
Inventory Carrying Cost = Closing stock x a x c
Material Cost = c x D

v) MRP for EBQ component


Total Cost = Setup Cost + Inventory carrying cost + Production Cost
Setup Cost = A (If there is any production, irrespective of no of batches)
Inventory Carrying Cost = Closing stock x a x c
Production Cost = factory cost (c) x Production (D)

Aggregate Planning
𝑁𝑜 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 𝑥 𝑛𝑜 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑥 ℎ𝑟𝑠/𝑑𝑎𝑦
Wages produced during Normal time(NT) =
ℎ𝑟𝑠/𝑢𝑛𝑖𝑡

Wages produced during Over time (OT) = Required Demand- Wages produced during NT

Hiring Cost = No of workers hired x hiring cost/worker

Layoff cost = No of workers laid off x layoff cost/worker

Wages Normal time = Wages produced normal time x hrs/unit x NT wages/hr

Wages Over time = Wages produced over time x hrs/unit x OT wages/hr

Inventory carrying cost = Closing stock x inventory carrying cost/unit/annum

Total Cost = Hiring Cost + Layoff cost + Wages Normal time + Wages Over time + Inventory
carrying cost

1. Level Strategy
The number of workers throughout a period(month/quarter) remains constant
𝐷𝑒𝑚𝑎𝑛𝑑 𝑥 ℎ𝑟𝑠/𝑢𝑛𝑖𝑡
Total no of workers required =
𝑛𝑜 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑥 ℎ𝑟𝑠/𝑑𝑎𝑦
2. Chase Strategy
The number of workers/period (month/quarter) changes. Need to calculate for every period

𝐷𝑒𝑚𝑎𝑛𝑑 𝑥 ℎ𝑟𝑠/𝑢𝑛𝑖𝑡
Total no of workers required =
𝑛𝑜 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑥 ℎ𝑟𝑠/𝑑𝑎𝑦

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