Question:
(i) An item is required in 5000 units/ year.
The consumption rate is constant. The rate of inventory carrying cost is 25% of
the average inventory value per year. You have two options to meet this
requirement.
Option A: The supplier supplies the item at Rs.
200/ unit and charges Rs. 2000 per delivery as packing and transportation cost.
Option B: The supplier supplies the item at Rs
190/ unit and charges Rs 4000 per delivery as packing and transportation cost.
The item supplied by this vendor has r% rejection. (To get r divide your roll
number by 5. r = 5 if your roll number is divisible by 5 else it is equal to
the remainder). Assume that you pay for the rejected items also.
Which option is
better and why? (After showing all the calculations, you must write a
concluding paragraph of about 3-4 sentences clearly mentioning the better
option and giving the values of your decision parameters).
(ii)
Assume that items received pass through the quality
check and only good items are stored. What should be the minimum reorder point
to keep the probability of shortage below 0.3, if the consumption during lead
time is variable and uncertain with mean 600 units and standard deviation 100
units? Answer: It has two parts. Answers to them are discussed in 2 different videos given below.
Part (i):
Part (ii):
Q1 (1) – In the option B we are paying even for the rejected items so it should not affect the quantity because If the order contains some rejected material then it should be mentioned that the rejected materials have been returned and new order has been placed , otherwise the question may be interpreted in a different way.
ReplyDeleteIf the materials were rejected and if we have to order more then cost would be escalated as we have already paid for the rejected materials (assumption) and we are again paying for excess order
Marking pattern is given below. There are some errors in the video that has been taken care while evaluation. You can get idea about your marks using the video and below comment.
ReplyDeleteQ1.1: This question required computing total cost in both the options and choosing the better option of the two. Rejection was to be handled for option B.
Students doing all these correctly got 7 out of 7. Those who did cost computation correctly but erred in handling rejection got 4-5. Answers of some of the students were conceptually right but they made some calculation or careless mistake. They got 5 or 6.
Some students tried comparing cost but lacked in concept. Such as using demand instead of order quantity to find average inventory level. There were even bigger conceptual errors with cost computation. These students got 2-3 marks. EOQ comparison is wrong. Students doing this got 0 or 1.
Q1.2: Some students interchanged z concept with probability. You were required to select z value for required probability. Probability value was to be looked into the cell of the table and the z value from corresponding row and column numbers. Interchanging the two is serious conceptual error and so 0 or 1 mark was given.
Some students considered 1-0.3 as .97 while it should be 0.7. If everything else is right, 4 marks were awarded.
Students confused with reorder point and safety stock but still doing few things right got 2-4 marks.