1. What is the EOQ and what is the lowest total cost?

Economic Order Quantity:

The Economic Order Quantity (EOQ) model can be defined as a traditional economic model
which is used to determine the economic or the most optimal order quantity. It defines the
number of units that a company should add to inventory with each order to minimize the total
costs of inventory such as holding costs, order costs, and shortage costs.
The EOQ provides a model for calculating the appropriate reorder point and the optimal reorder
quantity to ensure the instantaneous replenishment of inventory with no shortages.
√2𝐷𝑆
Formula: 𝐸𝑂𝑄 = 𝐻

Here, D= Annual Demand

S= Setup/ Order cost
H= Holding cost

Lowest Total Cost:

Summing the two costs such as setup/order cost & holding cost together gives the annual total
cost of orders.
To find the optimal quantity that minimizes this cost, the annual total cost is differentiated with
respect to volume per order, Q. The total cost will be the lowest at EOQ level.
It is shown as follows:

𝐷 𝑄
TC= 𝑄 𝑥 𝑆 + 2 𝑥 𝐻

2. What is the annual cost of holding inventory at the EOQ and the annual cost of
ordering inventory at the EOQ?

Annual cost of holding inventory at the EOQ:

Holding inventory often comes with its own costs. This cost can be in the form of direct costs
incurred by financing the storage of said inventory or the opportunity cost of holding inventory
instead of investing the money elsewhere. The holding cost of the inventory is calculated by
finding the sum product of the inventory at any instant and the holding cost per unit. It is
expressed as follows:
𝑄
Annual holding cost = 2 𝑥 𝐻

Annual cost of ordering inventory at the EOQ:

The number of orders occur annually can be found by dividing the annual demand by the volume
per order. The formula can be expressed as:
𝐷
Number of order = 𝑄

For each order with a fixed cost that is independent of the number of units, S, the annual ordering
cost is found by multiplying the number of order by this fixed cost. It is expressed as:
𝐷
Annual ordering cost = 𝑄 𝑥 𝑆

5. What do you mean by ABC analysis? Discuss the practical implication of ABC
analysis in any factory operation.

ABC analysis:
ABC analysis is a type of inventory categorization method in which inventory is divided into
three categories, A, B, and C, in descending value. A has the highest value items, B is lower
value than A, and C has the lowest value.
ABC analysis works by breaking it down in the following ways:
A-items: 15% of all goods contribute to 70-80% of the annual consumption value of the items
B-items: 35% of all goods contribute to 15-25% of the annual consumption value of the items
C-items: 50% of all goods contribute only 5% of the annual consumption value of the items

In order to calculate the annual consumption value of any item or items:

Annual consumption value = annual demand x item cost per unit

Implication of ABC analysis:

ABC analysis is extensively used for supply chain management, inventory systems and stock
checking methods, ABC analysis is often applied to the design of cycle counting systems.
For example, a factory store might choose to count A items, of high worth once a quarter, but B
items only two times a year with and C items only counted once.

6. Define BOM and Lead time with suitable example.

Bill of Materials:
A bill of materials (BOM) is an extensive list of raw materials, components, and assemblies
required to construct, manufacture or repair a product or service.

Example: A bicycle manufacturer that wants to build 1,000 bicycles. A bill of materials for a
bicycle will include all the parts that make up the bicycle such as seats, frames, brakes,
handlebars, wheels, tires, chains, pedals and cranksets, including the quantities required of each
component and their cost.

Lead time:
Lead time is the amount of time that passes from the start of a process until its conclusion.
Companies review lead time in manufacturing, supply chain management, and project
management during pre-processing, processing, and post-processing stages. By comparing
results against established benchmarks, they can determine where inefficiencies exist.

Example:
A large festival that takes place during the first week of August every year attracts100,000
people on average and typically sells 15,000 festival T-shirts. The vendor that supplies the T-
shirts needs one business day to complete the shirt design, one business day to have it proofed
and make any necessary fixes, one business day to print the shirts, and two business days to print
the items. The lead time in this example would be five business days.

7. What do you mean by MRP? How does it work in practical situation?

Material requirements planning:

Material requirements planning is a computer-based inventory management system designed to

assist production managers in scheduling and placing orders for items of dependent demand.
Dependent demand items are components of finished goods such as
 raw materials,
component parts, and
subassemblies

for which the amount of inventory needed depends on the level of production of the final
product.

MRP in practical situation:

MRP is designed to answer three questions:

What is needed?
How much is needed?
When is it needed?

MRP works backward from a production plan for finished goods, which is converted into a list
of requirements for the subassemblies, component parts, and raw materials that are needed to
produce the final product within the established schedule.

By parsing raw data like; bills of lading and shelf life of stored materials, this technology
provides meaningful information to managers about their need for labor and supplies, which can
help companies improve their production efficiency.

8. What do you mean by Supplies Inventory and Work in Process inventory?

Supplies inventory:
Supplies inventory are stock of supplies that have been bought already but not yet used or
consumed. Usually refers to a company's office supplies or in Cost Accounting, as materials
inventory.
Work in Process inventory:

Work in process inventory is the part of a manufacturer's inventory that is in the production
process and has not yet been completed and transferred to the finished goods inventory. WIP
inventory contains the cost of the direct material, direct labor, and factory overhead placed into
the products on the factory floor.
9. What are the items included in Holding cost and Ordering Cost?

Items included in holding cost:

Holding cost refers to the total cost of holding inventory. This includes warehousing costs such
as -
rent,
utilities
and salaries,
financial costs such as opportunity cost, and inventory costs related to
perishability, shrinkage (leakage) and insurance.

Items included in ordering cost:

Ordering costs are the expenses incurred to create and process an order to a supplier. These
costs are included in the determination of the economic order quantity for an inventory item.
Examples of ordering costs are:

Cost to prepare a purchase requisition

Cost to prepare a purchase order
Cost of the labor required to inspect goods when they are received
Cost to put away goods once they have been received
Cost to process the supplier invoice related to an order
Cost to prepare and issue a payment to the supplier

There will be an ordering cost of some size, no matter how small an order may be. The total
amount of ordering costs that a business incurs will increase with the number of orders
placed.

10. What are the significance of Re-order point?

One of the most difficult parts of holding an inventory of products knows when to re-order more
stock. By conducting a sales analysis, one can reasonably predict how much stock they will sell
on any given day. Furthermore, accounting for lead-time of delivery of stock brings closer to
knowing when to re-order.
But these methods just aren’t enough. This is mostly due to unforeseen circumstances and
variables that cannot be accurately accounted for. These circumstances and variables include:

Unexpected delivery delays by the supplier: Sometimes suppliers have unforeseen

problems with their own stock and this can end up delaying your delivery.
Unexpected customer sales: This is when your business sells more than was forecasted
and thus you run out of stock sooner than anticipated.
Unforeseen influencing factors: Sometimes particular stock products can become ‘in-
fashion’ and start to fly off the shelves, as they haven’t done so before. This is something
that is very difficult to predict.
For all reasons stated above, when ordering stock, business needs to consider keeping “safety
stock”. This is the stock that covers when these types of events occur.

Another item task that the inventory control system can undertake is monitoring stock levels to
see when the “re-order point” has been reached. The re-order point is the point at which the stock
gets low enough that it’s time to order further stock. This is an important task that can be
implemented automatically with this kind of system when the point has been reached.

Placing orders at the reorder point ensures that the replacement stock arrives just in time to
ensure that no stock outs take place. Reorder point also helps to avoid unnecessary inventory
holding costs that may result from placing orders too early thereby causing inventory to pile up.

11. Explain the benefits of Two Bin System over One Bin System.

A two bin system is a simple, visually-based method for stocking and replacing items that is
used. It is common on assembly and moving production lines where elements units are added to
the merchandise.
One bin is the working bin, where items for manufacture and sale are taken from. When the first
container gets empty, it means time to refill. But when it is refilling, the second container with
elements is used in work. It is merely like its name suggests, it’s composed of 2 bins that area
unit filled with elements or materials to start out.
Benefits of Two Bin System:

A vast number of organizations have incorporated it in one or more processes. Its simplicity,
high responsiveness, and effectiveness are the primary reasons behind its success. The benefits
that hold relevance to almost all the companies using it are listed down below:
It ensures optimal availability of inventory
It automates stock replenishment
It mitigates the risk of abrupt shortages
It allows the distribution of stock among the shop floors and warehouses efficiently.
It helps enchasing instant surges in demand
It gives adequate time for ordering replenishments

12. Why a project is called Complex? Explain briefly.

Project can be termed as complex – need careful coordination and control in terms of

Time
Budget

Complex projects are projects that are characterized as having many different social and
technical elements on many different levels that are interconnected and interdependent. In
contrast to simpler projects that are standardized, well-defined endeavors within predictable and
stable environments, complex projects typically involve a high degree of uncertainty in defining
end objectives, they often take place within a changing environment and may involve the input
of many diverse stakeholders.

13. What are the major characteristics of Project? Explain briefly.

Project is a complex, non-routine, one-time effort limited by time, budget, resources and
performance specifications designed to meet customer need.

Project can be termed as complex – need careful coordination and control in terms of

Time
Budget
Major characteristics of a Project
1. Project posses an established an specific objective
2. It is unique in nature
3. It defines life span
4. A project is typically for a customer.
5. It has a interdependency characteristics.
6. The project is temporary in nature. It typically has a defined start and a defined end-point.
7. The project will have a unique set of requirements that need to be delivered within the
boundaries of this project.
8. A project can typically be more of a once off endeavor, rather than something that’s
happening all the time in a repeated fashion.
9. A project is not ‘business as usual’, which is more akin to a process.
10. A project can very often be cross-functional, or indeed cross-organization.

14. Explain the project life cycle briefly.

The project manager and project team have one shared goal: to carry out the work of the project
for the purpose of meeting the project’s objectives. Every project has a beginning, a middle
period during which activities move the project toward completion, and an ending (either
successful or unsuccessful). A standard project typically has the following four major phases
(each with its own agenda of tasks and issues):

1. The Initiation Phase:

During the first of these phases, the initiation phase, the project objective or need is identified;
this can be a business problem or opportunity. An appropriate response to the need is
documented in a business case with recommended solution options. A feasibility study is
conducted to investigate whether each option addresses the project objective and a final
recommended solution is determined. Issues of feasibility (“can we do the project?”) and
justification (“should we do the project?”) are addressed.
 2. The Planning Phase:

The next phase, the planning phase, is where the project solution is further developed in as
much detail as possible and the steps necessary to meet the project’s objective are planned. In
this step, the team identifies all of the work to be done. The project’s tasks and resource
requirements are identified, along with the strategy for producing them. This is also referred
to as “scope management.” A project plan is created outlining the activities, tasks,
dependencies, and timeframes. The project manager coordinates the preparation of a project
budget by providing cost estimates for the labour, equipment, and materials costs. The budget
is used to monitor and control cost expenditures during project implementation

“Slow start, Quick Momentum, Slow Finish”

3. The Execution Phase:

During the third phase, the implementation phase, the project plan is put into motion and the
work of the project is performed. It is important to maintain control and communicate as needed
during implementation.

In any project, a project manager spends most of the time in this step. During project
implementation, people are carrying out the tasks, and progress information is being reported
through regular team meetings. The project manager uses this information to maintain control
over the direction of the project by comparing the progress reports with the project plan to
measure the performance of the project activities and take corrective action as needed.
 4. The Termination Phase:

During the final closure, or completion phase, the emphasis is on releasing the final deliverables
to the customer, handing over project documentation to the business, terminating supplier
contracts, releasing project resources, and communicating the closure of the project to all
stakeholders. The last remaining step is to conduct lessons-learned studies to examine what went
well and what didn’t. Through this type of analysis, the wisdom of experience is transferred back
to the project organization, which will help future project teams.

15. What are the activities involved in different stages of Project? Explain.

The project manager and project team have one shared goal: to carry out the work of the project
for the purpose of meeting the project’s objectives. Every project has a beginning, a middle
period during which activities move the project toward completion, and an ending (either
successful or unsuccessful). During these time, couple of activities are involved in each stage of
the project life cycle, those are given below:

1. Definition: During the first of these phases, the initiation phase, the project objective or need
is identified. Following activities are being performed in this stage (assume as Construction
project)

 Goal: The ultimate goal is being finalized. As a construction project, the aim of the
project would be like manager will build a 10 storied building within 1.5years

 Specification: Full design or blueprint of the building is prepared, how many lift, flat
will be there are decided.

 Task: To fulfill those specification, there will be needed human resources, foundation,
electricity utility arrangement etc are defined.

2. Planning: The next phase, the planning phase, is where the project solution is further
developed in as much detail as possible and the steps necessary to meet the project’s objective
are planned.
  Schedule: how those tasks will be performed, what should be done those are scheduled.
A routine is prepared considering those.

 Responsibility: There are lots of things to do which is impossible to operate with just a
single person so Supervisor is recruited who will take some responsibility, someone will
oversee the foundation work, some will see the Procurement activities etc

 Budget: Total costing is being estimated, how many raw materials will be needed,
additional materials needed, wages of workers etc are calculated.

 Risk: Risk allocation needs to be made, there is certain that in the long term project, there
will be like 20-30% chances of uncertainty, in the mean time the material costs can
increased, inflation effect can cause hardens etc

3. Execution: During the third phase, the implementation phase, the project plan is put into
motion and the work of the project is performed.

 Status report: Supervisor reports about the whereabouts of the progress to project
manager, it can be daily, weekly.
 Change: Sometimes for the demand of the environment and the present situation, some
changes needed to be adapted.

 Monitor and Control: On basis of the report, project manager compares with the
planned performance and the actual, monitors the overall activities.

 Quality: Quality is being ensured by the manager. One should not compromise with the
quality issue, for the long term sustainability, good quality must be ensured.

4. Delivery: During the final closure, or completion phase, the emphasis is on releasing the final
deliverables to the customer, handing over project documentation, terminating supplier contracts,
releasing project resources, and communicating to all stakeholders.
  Train customer: It is needed to train the clients sometimes for example during selling
flat, it is needed to help clients to find out the fire alarms, what should be done if
electricity shock circuits etc.

 Reassign staff : Sometimes extra stuffs are recruited for the short term, for example we
hire some stuff from Bashundhara group, after our purpose is served, we reassign those
stuffs to the group.

 Lesson learned: What problems have been occurred during the life cycle of the project,
how one can tackle those but failed on the basis of those experience a report is being
generated so that again if someone engage in a similar type of project, he can understand
the issue and can easily done his rest of the activities.

16. What do you understand by critical path?

Critical path identifies those activities that could not be delayed. It figures out which activities
are needed to be completed before other activities begin. These activities are also called
predecessors.

It’s a sequence of stages where we find out what the least amount of time is necessary to
complete a task with the least amount of slack.

The critical path in the network is: a – d – j

17. What are the necessities of knowing the Early Start (ES)/Early Finish (EF) and Late
Start (LS)/Late Finish (LF) for each of the activities of Project?

For the project manager, knowing the Early Start (ES)/Early Finish (EF) and Late Start (LS)/Late
Finish (LF) for each of the activities of Project is very crucial for the following reasons:

Project manager gets lots of room of flexibility

He can monitor very easily and closely critical activities.
If any problem happens in critical activity, they can properly manage those.
Also can manage the long-term project effectively and efficiently
There remain many works which can be started after delaying some days, Manager can
have a knowledge about those.
Manager can get a view about the critical activities.

18. What are the priority rules for job sequencing? Why do the employers use priority
rules for sequencing n/1 problem? Explain.

In job sequencing, 3 types of jobs are sequenced, n/1, n/2 and n/n. Among those, priority rules
are applied only just in n/1 problem.

There are 10 priority rules. Three of them are widely used for sequencing n/1 problem. Those are
described briefly in the following:

 FCFS – First come first served : Like said, the first order will be processed and served
first, that order the highest priority.

 SOT – Shortest operating time : Order size differs, some may be larger, some be
lighter. We shall process and start with those order which is small in volume and easy to
process comparatively.

 DDATE – Earliest due date first : There are some orders which clients wants want us to
process either within 2 days or 7 days or in 15 days. Base on the due date, we will
sequence the job, whose due date is lesser, we will process that one firstly.
Reason for using priority rules for sequencing n/1 problem

n/1 problem means “n” number of jobs in one machine. We use priority for sequencing n/1
problem for the following reasons:

 Meet due date of customer : By applying priority rules, we can easily meet the due
date. Every customer give some days within that time we need to process those order,
that time length is called due date. By sequencing job, we can successfully meet up the
due day to customers.
 Minimize flow time (time a job spends in the process) : During order processing time,
it is a very common tendency to have a flow time, by sequencing job properly we can
shorten the flow time. There is a difference between flow time and process time.

 Minimize work-in-process inventory : With the application of priority rules, jobs are
sequenced properly and gets priority which needs to be done firstly. By maintaining this
process, work in process inventory can be minimized greatly.

 Minimize idle time of the machine or worker : Idle time can be very much avoided if
the priority rules properly implemented.

19. Discuss the conditions of n/2 problem with suitable example. Do you think that we
can have multiple solutions in case of certain n/2 problem? Explain such case.

n/2 means “n” number of jobs in 2 machines. Suppose we got 5 orders now these needs to be
processed by 2 machines. 1st order can take time for about 7days to be processed in machine 1,
same order can be processed within 5days in machine 2.

Condition with example

We must start order processing by the 1 st machine, then we will move forward to 2nd machine,
we can’t start from the 2nd machine. The process should begin with the 1st machine.

We can elaborate the condition by car example. Let’s assume there are 3 cars, one is small, one
is micro bus and another one is mini bus. 1st one badly destroyed, 2nd one less to some extent, 3rd
ones color got severely damaged. In a car denting and painting shop, firstly 3 of the cars will be
gone under denting, the processing time would be different for those three cars. Some will take
longer time some will take little. In painting, time will vary according to the cars size. Ultimately
the process will be started from denting then will be gone under the process of painting.

Multiple solutions in case of certain n/2 problem

Multiple solutions in case of certain n/2 problem are possible but there remains some obstacles:

those solutions consumes more time

also not very cost effective one

That’s why we prefer to use Johnson’s Rule. According to Johnson, if we go by his rule and
sequence n/2 problems, it will

take least time

save money to some extent

In practical situation, it is also observed that by applying Johnson’s Rule, it saves much effort
than other method. Johnsons’s rule consists of 4 steps:

Step-1 : List the operation time for each job on both machine

Step-2 : Select the shortest operating time

Step-3 : If the shortest time is for the first machine, do the job first; if it is for the second
machine, do the job last

Step-4 : Repeat step2 and 3 for each remaining job until the schedule is complete

20. Define n/n problem in case of machine, shop and contractor. Also mention the
conditions of n/n problem.

n/n problem means “n” number of jobs for “n” number of machines. It can be elaborated by the
help of machine, shop and contractor.
In case of machine

Suppose there are 4 jobs in machine shop. In that machine shop there are 10 machines but all are
equally well functioned. Some are latest, some are high performance, some are less effective. As
there are 4 jobs so we will select 4 best machines form those, M1, M2, M3 and M4.

There will be one job for one machine. Still those 4 machines are not equally similar in function.
Some are automatic, some has great speed. These can be explain in a matrix

M1 M2 M3 M4
J1 15 12 14 17
J2 11 12 15 13
J3 13 12 10 11
J4 15 17 14 16
Matrix In case of machine

In case of a shop

A broker gets 4 jobs. He give those 4jobs to 4 shops. 1 st job is given to a 1st shop, S1 and that
owner has given a estimated cost for about 15lacs. Then we go for a 2 nd shop, S2, he also
provided a quotation. From those cost and quotation, we prepare a matrix

S1 S2 S3 S4
J1 15 12 14 17
J2 11 12 15 13
J3 13 12 10 11
J4 15 17 14 16
Matrix In case of A SHOP

We will give one job to one machine otherwise it will consume more time. Which shop will give
us the lowest cost, need to find out.
In case of a contractor

Let’s assume for the construction of 4 building, a tender has been given on a daily newspaper.
Lots of contractors have given costs and quotation. But each contractor will be provided with
single job. From all those, we select 4 contractors on the basis of cost and quality and prepared
the following matrix.
C1 C2 C3 C4
J1 15 12 14 17
J2 11 12 15 13
J3 13 12 10 11
Matrix In case of a contractor
J4 15 17 14 16
Contractor 1 provided 15cr for job1, 11cr for job2 and so on. From all these cost we need to find
out the lowest one that define n/n problem.

Conditions of n/n problem

There is a condition for this n/n problem, that is-

1 machine should not be given more than 1 job

We won’t provide same job to 2 machines.