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APPLIED OPERATION
aC s
vi y re

MANAGEMENT
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Assignment #2
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is
Th
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Aukshay mahadev - 8681491

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 Executive summary: -

In the following report we will be doing the detailed analysis on the procurement of copy paper by
different boards of the school. we will be calculating the total cost in actual and theoretical condition.
However, the unit price and holding cost for the box remain same for all boards i.e. $2/Box.

Analysis Report: -

Data of the procurement of the different school board are the given below:
Cost of placing an order
School Monthly usage (R) (S) Current Order size (Q)
School Board A 500 $1000 1500
School Board B 200 $800 400
School Board C 300 $900 300
School Board D 400 $1000 1600

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School Board E 600 $1200 900

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School Board F 100 $400 300

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School Board G 200 $1000 200

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Where ,
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Unit cost (C) = $60
Annual holding cost (H) = $2
School is operating 12 months
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aC s

Let us start with School Board A:

vi y re

Annual usage of Board A (R) = 500*12

= 6000 Boxes
Average cycle inventory for Board A = Q/2
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=1500/2
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= 750 boxes
Total annual holding cost for Board A = H*Q/2
= 2*750
is

= $1500
Now,
Th

Annual Fixed order cost for Board A = S*R/Q

= 1000*6000/1500
= $ 4000
Annual Cost of material for Board A = C*R
sh

= 60*6000
= $360000
Total annual cost for board A = annual holding cost + annual fixed order cost + annual cost of material
= $1500 + $4000 + $360000
= $365500

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 !"#
Economic order quantity for Board A will be Q* = √ $
!∗&'''∗('''
=√ !
= 2449.5
Therefore, resulting average Icycle = Q*/2
= 2449.5/2 = 1224.75
Hence minimum annual total cost TC* = √2*S*R*H + C*R
= √2*1000*6000*2 + 60*6000 = $364898.98
So average time to stay in input buffer Ti = Icycle/R
= 1224.75/500 = 2.4495
So similarly, for the other boards of the school
School R S*R/Q H*Q/2 C*R TC Q* Icycle TC* Ti TC -
TC*
School 4000 1500 360000 365500 2449.5 1224.7 364899 2.45 601.02
Board A 6000
School 4800 400 144000 149200 1385.6 692.82 146771 3.46 2428.71
Board B 2400

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School 10800 300 216000 227100 1800 900 219600 3 7500

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Board C 3600

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School 3000 1600 288000 292600 2190.9 1095.4 292382 2.73 218.21

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Board D 4800
School 9600 900 432000 442500 2939.4 1469.7 437879 2.45 4621.22

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Board E 7200
rs e
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School 1600 300 72000 73900 692.82 346.41 73386 3.46 514.35
Board F 1200
School 12000 200 144000 156200 1549.2 774.6 147098 3.87 9101.61
Board G 2400
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aC s

Total cycle inventory = Cycle inventory for school boards(A+B+C+D+E+F+G)

vi y re

=1224.7+692.82+900+1095.4+1469.7+346.41+774.6 = 6503.7
Total annual order cost = Annual order cost for school boards(A+B+C+D+E+F+G)
= $4000+$4800+$10800+$3000+$9600+$1600+$12000 = $45800
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Total annual holding cost = Annual holding cost for school boards(A+B+C+D+E+F+G)
= $1500+$400+$300+$1600+$900+$300+$200 = $5200
ar stu

Combine total annual order and holding Cost;

is

Sum = Total annual order cost + Total annual holding cost

= $45800 + $5200 = $51000
Th

Let us consider if we try to centralization of the process so that all boards by through the same channel

Total flow rate for the year is;

sh

RTOTAL = Flow rate of school boards(A+B+C+D+E+F+G)

= 6000 + 2400 + 3600 + 4800 +7200 + 1200 + 2400 = 27600

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 Similarly,

total fixed cost for all boards

STOTAL = Fixed cost of order for school boards(A+B+C+D+E+F+G)
= $1000 + $800 + $900 + $1000 + $1200 + $400 + $1000 = $6300

Holding cost remain same H = $2,

New Economic order quantity will be,

!∗")*)+,∗#)*)+,
Q=√ $
!∗(-''∗!.(''
=√ !
= 13186.36

Hence, average cycle inventory in central

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Icycle = Q/2 = 13186.36/2 = 6593.2

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Total annual order and holding cost for centralised

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Total = √2*STOTAL*RTOTAL*H = √2*6300*27600*2 = $26372.71

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Which is 48.2% less than compare to the decentralised
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Lead time = The time lag between the arrival of the replenishment and time the order was placed.
So, if our lead time is 1 week
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Throughput for school boards A = 500 per month

vi y re

Per week = 500/4 =125 per week

Hence, Reorder point = Lead time * Throughput

= 1*125 =125 units
ed d
ar stu

Hence, when inventory level drops below 125 unit, then new order can be placed.

School Monthly usage (R) Weekly Throughput Reorder point

is

School Board A 500 125 125

School Board B 200 50 50
Th

School Board C 300 75 75

School Board D 400 100 100
School Board E 600 150 150
sh

School Board F 100 25 25

School Board G 200 50 50

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