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Manufacturing Model With Shortage

This document summarizes an inventory model that allows for shortages, with three key aspects: 1) It explains a manufacturing model where production rate exceeds demand rate, leading to increasing inventory over time until production is stopped and shortages occur again. 2) It provides a graphical representation of inventory levels over time, showing the sawtooth pattern of increasing then decreasing inventory. 3) It gives an example problem calculating optimal order quantity, time between orders, number of orders, optimum shortage, maximum inventory, and annual cost for a company with given demand, production rate, setup and holding costs, and shortage penalty.

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942 views6 pages

Manufacturing Model With Shortage

This document summarizes an inventory model that allows for shortages, with three key aspects: 1) It explains a manufacturing model where production rate exceeds demand rate, leading to increasing inventory over time until production is stopped and shortages occur again. 2) It provides a graphical representation of inventory levels over time, showing the sawtooth pattern of increasing then decreasing inventory. 3) It gives an example problem calculating optimal order quantity, time between orders, number of orders, optimum shortage, maximum inventory, and annual cost for a company with given demand, production rate, setup and holding costs, and shortage penalty.

Uploaded by

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

With shortage Allowed


Reviewing some previous
concepts
• Inventory Costs:
 Item cost = C1
 Ordering cost= C2
 Holding cost= C3
 Shortage cost= C4
Reviewing some previous
concepts
• EOQ Models Or Inventory Models:
 There are two things

Q(Quantity)

Time(t)
Model 3: Manufacturing model
with shortage Allowed
1. Model Explanation
2. Graphical Representation
3. Example
Model Explanation:
• You are not Manufacturing things but taking Orders
• Shortage
• You start Manufacturing and selling
• Manufacturing rate > Demand rate
• Inventory goes on increasing day by day
• Now you want to use the inventory
• Meanwhile you have to close the production otherwise inventory goes on
increasing
• Inventory is now Zero but you are still selling
• Again Shortage
Example
 The demand for an item in a company is 10000 units/year and the company
can produce at the rate of 20,000 per month. The cost of one set up is Rs. 300
and the holding cost of 1 unit per month is Rs 4.The shortage cost is Rs 25 per
unit per year.
Determine:
(a) The optimum manufacturing quantity.
(b) The time between orders.
(c) The number of orders/year.
(d) The optimum shortage.
(e) The maximum inventory.
(f) The optimum annual cost if the cost of the item per unit is Rs. 2.

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