Operations Management - Assignment 3

Topics: Economic order quantity, Arithmetic mean, Reorder point Pages: 3 (675 words) Published: February 26, 2012
Operations Management

Assignment 3

Q:Difference between different types of EOQ.

Economic Order Quantity: The economic order quantity (EOQ) is the fixed order quantity (Q) that minimizes the total annual costs of placing orders and holding inventory (TC). This type of model is used when

i) Demand is independent.
ii) Compute how much to order.

Economic Production Quantity: The economic production quantity (EPQ) is the production quantity (lot size) that minimizes the total annual cost of setups and holding inventory. This type of model is used when

i) Demand is dependent.
ii) Compute how much to make at one time.

Reorder Point: EOQ tells us about how much to order but not when to order. ROP tells us about when to order. The reorder point occurs when the quantity on hand falls below a threshold value. There are 4 determinants of the reorder point:

i) The rate of demand.
ii) The lead time.
iii) The extent of demand and/or lead variability.
The degree of stockout risk acceptable to management.

Chapter – 10
Q3)
Sample| Mean| Range|
1| 3.06| 0.42|
2| 3.15| 0.5|
3| 3.11| 0.41|
4| 3.13| 0.46|
5| 3.06| 0.46|
6| 3.09| 0.45|
Average| 3.1| 0.45|

The mean of the means and ranges have been calculated as 3.1 and 0.45 respectively. The number of observations , i.e, n = 6
Thus from the table 10.3 of the textbook, A2 = 0.48, D3 = 0, D4 = 2.00 Computing Upper Control Limits and Lower Control Limits:
UCL(Mean) = Mean + A2 * Range Mean = 3.1 + 0.48 * 2
= 3.1 + 0.96 = 4.06
LCL(Mean) = Mean - A2 * Range Mean = 3.1 - 0.48 * 2
= 3.1 – 0.96 = 2.14
UCL(Range) = D4 * Mean Range = 2.00 * 0.45 = 0.9
LCL(Range) = D3 * Mean Range = 0 * 0.45 = 0
As can be seen from the above table, and comparing the UCL and LCL for the mean, it is seen that both the smallest sample mean, 3.06 and the highest sample mean, 3.15, are both within the control limits (calculated...
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