Fundamentals of Operation Management

By: CM Dhakal

Chapter 1: Operation and Productivity

Total output
A. Total or multifactor productivity =
Total input

B. Partial Productivity

Total output
1. Labor productivity =
Labor input

Total output
2. Capital productivity =
Capital input

Total output
3. Material productivity =
Materialinput

Total output
4. Energy Productivity =
Energyinput

Total output
C. Total factor productivity =
Labor input +Capital input

New productivity −old productivity

D. Percentage change in productivity = ×100
Old productivity

1. Following figures provides the output and input of producing item A and B. Compute partial
productivity (Labor, Material, Capital and Energy), total productivity, total factor
productivity and compare the productivity level in two different years
Total capital investment : Rs 50000 (Both period)
Interest rate : 3.64% (Both period)
Output/Input Base period Review period
Quantity Price/unit or Quantity Price/unit or
Total cost Total cost
Product
A 200 Pcs 5.00 250 Pcs 4.00
B 200 Pkts. 11.00 215 Pkts. 13.50
Input/Resources
Labor 80 Hours Rs 800 80 Hours Rs 950
Material 80 Kgs. Rs 320 100 Kgs. Rs 400
Energy 1200 Kwh. Rs 60 1300 Kwh. Rs 64

Solution:
a. Calculation of Total output
 For base period = 200×5 + 200×11 = Rs 3200
For review period = 250×4+215×13.5 = Rs 3902.5
b. Calculation of capital input (Interest)
For both period = 3.64% of 50000 = Rs 1820
c. Total input = Labor + Material + Energy + Capital
For base period = 800+320+60+1820 = Rs 3000
For review period = 950+400+64+1820 = Rs 3234

Now, calculation of different productivity

Total output
A. Total or multifactor productivity =
Total input

3200
For base period = = 1.067 times
3000

3902.5
For review period = = 1.207 times
3234

B. Partial Productivity

Total output
1. Labor productivity =
Labor input

3200
For base period = = 4 times
800
3902.5
For review period = = 4.11 times
950

Total output
2. Material productivity =
Materialinput

3200
For base period = = 10 times
320
3902.5
For review period = = 9.756 times
400
Total output
3. Energy productivity =
Energy input

3200
For base period = = 53.33 times
60
3902.5
For review period = = 60.976 times
64
Total output
4. Capital Productivity =
Capital input
 3200
For base period = = 1.758 times
1820
3902.5
For review period = = 2.14 times
1820
Total output
C. Total factor productivity =
Labor input +Capital input
3200
For base period = = 1.22 times
800+1820
3902.5
For review period = = 1.409 times
950+1820

2. Hari makes felted cushion for home interior. Hari and his three employees spend a total of
36 hours per day making the 18 cushions
a. What is their productivity?
b. Hari and his employees redesigned the process and increase the output rate to 25
cushions per day. What will be new productivity?
c. What will be their percentage increase in productivity?
Solution:
Here given:
Output = 18 cushions
Labor input = 36 hours
Total output 18
a. Calculation of labor productivity = = = 0.50 times
Labor input 36
b. Here:
Output = 25 cushions
Labor input = 36 hours
Total output 25
Calculation of new labor productivity = = = 0.69 times
Labor input 36
New productivity −old productivity
c. Percentage increase in productivity = ×100
old productivity
0.69−0.50
= ×100 = 38%
0.50

3. Ramesh Kaji Maharjan is president of Maharjan Coffee Udhyog. It makes 2000 packets per
day with the following resources:

Labor 800 hours per day @ Rs 80 per hour

Raw material 5000 kg. per day @ Rs 70 per kg.

Energy Rs 5000 per day

Capital Rs 40000 per day

 a. What is the labor productivity per labor hour?
b. What is the multi-factor productivity?
c. What is the percent change in multifactor productivity if firm reduce the energy bill
by Rs 1000 and capital by Rs 20000 per day?
Solution:
Here given:
Output = 2000 packets
Total output 2000
a. Calculation of labor productivity = = = 2.50 times
Labor input (Hours) 800
Total output 2000
b. Calculation of multifactor productivity = = = 0.0043 times
Total input 459000
Where:
Total input = 64000+350000+5000+40000 = Rs 459000
c. Percentage change in multifactor productivity =
New productivity −old productivity
×100
old productivity
0.004 6−0.0043
= ×100 = 6.97%
0.0043

Where:
New input = 64000+350000+4000+20000 = Rs 438000
Total output 2000
Now, new productivity = = = 0.0046 times
Total input 438000

4. A dairy company seeks advice from an external consulting company concerning its business
and production processes. The final consulting report describes several steps to increase
productivity including implementation of cutting-edge processing techniques through more
powerful filtering system.

Particulars Existing Proposed

System system
Workers 12 8
Milk output/hour 1000 gallons 1200 gallons
Wage rate/hour Rs 12 Rs 12
Filtration cost/hour Rs 120 Rs 150

Required:
a. Calculate the labor productivity for the existing as well as proposed system.
b. Find the all-factor productivity for both systems.
c. Assume that current processing includes 700 gallons of Grade-milk sold at Rs
2.40/gallon and 300 gallons of Grade-B milk at Rs 1.90/gallon. Furthermore,
assume that under the proposed system, processing will include 600 gallons of
Grade-milk at Rs 2.40/gallon and 600 gallons of Grade-B milk at Rs
 1.90/gallon. Compare all-factor productivity for both the existing and the new
system.
Solution:
i. Calculation of Total output
For Existing System = 1000 gallons
For proposed system = 1200 gallons
ii. Total input = Labor + filtration
For Existing system = 12×12+120 = Rs 264
For proposed system = 8×12+150 = Rs 246
Now,
Total output
a. Calculation of labor productivity =
Labor input
1000 1000
For existing system= = 6.94 times, or = 83.33 times
144 12
1200 1200
For proposed system = = 12.50 times, or = 150 times
96 8
Total output
b. Calculation of multifactor productivity =
Total input
1000
For existing system = = 3.78 times
264
1200
For proposed system = = 4.878 time
246
Total output
c. Calculation of new total productivity =
Total input
2250
For existing system = = 8.52 times
264
2580
For proposed system = = 10.49 time
246

Calculation of new output:

For existing system= 700×2.4+300×1.90 = Rs 2250
For new system = 600×2.4+600×1.90 = Rs 2580
5. XYZ Company and ABC Company are conducting same type of business in same market.
The information regarding output and inputs used in producing and providing products are
summarized as:
XYZ Company ABC Company
Finished goods:
Product A 30,000 units 35000 units
Product B 40,000 units 38000 units
Raw material:
Component X 10,000 units 12,000 units
Component Y 15,000 units 13,000 units
Labor hour 20,000 DLH 18,000 DLH
Capital used 1,000,000 900,000
Overhead Rs 20,000 Rs 15,000
Other inputs Rs 10,000 Rs 12,000
 The selling price per unit of Product A is Rs 20 and product B is Rs 25. The cost per unit of
Component X is Rs 5 and component Y is Rs 6 per unit. The labor cost per hour is Rs 10. Interest
rate is 10% for both Company. Calculate different possible productivity and comment on the best
performance of company.

Solution:

i. Calculation of Total output

For XYZ Company = 30,000×20 + 40,000×25 = Rs 1600000
For ABC Company = 35000×20 + 38000×25 = Rs 1650000
ii. Material input
For XYZ Company = 10,000×5 + 15,000×6 = Rs 140000
For ABC Company = 12000×5 + 13000×6 = Rs 138000
iii. Labor input
For XYZ Company = 20,000×10 = Rs 200000
For ABC Company = 18000×10 = Rs180000
iv. Calculation of capital input (Interest)
For XYZ Company = 10% of 1000000 = Rs 100000
For ABC Company = 10% of 900000 = Rs 90000
v. Total input = Material + Labor + Capital + Overhead + Other
For XYZ = 140000+200000+100000+20000+10000 = Rs 470000
For ABC = 138000+180000+90000+15000+12000 = Rs 435000

Now, calculation of different productivity

Total output
a. Total or multifactor productivity =
Total input

1600000
For XYZ Company = = 3.40 times
470000

1650000
For ABC Company = = 3.79 times
435000

b. Partial Productivity

Total output
1. Labor productivity =
Labor input

1600000
For XYZ Company = = 8 times
200000
1650000
For ABC Company = = 9.16 times
180000

Total output
2. Material productivity =
Materialinput
 1600000
For XYZ Company = = 11.42 times
140000
1650000
For ABC Company = = 11.95 times
138000
Total output
3. Overhead productivity =
Overhead input

1600000
For XYZ Company = = 80 times
20000
1650000
For ABC Company = = 110 times
15000
Total output
4. Capital Productivity =
Capital input

1600000
For XYZ Company = = 16 times
100000
1650000
For ABC Company = = 18.33 times
90000
Total output
5. Other Productivity =
Other input

1600000
For XYZ Company = = 160 times
10000
1650000
For ABC Company = = 137.5 times
12000

Total output
c. Total factor productivity =
Labor input +Capital input
1600000
For XYZ Company = = 5.33 times
200000+100000
1650000
For ABC Company = = 6.11 times
180000+ 90000

Chapter 3: product and Process design

Measuring different types of capacity

a. Designed capacity = days operated × no. of shift × hours per shift × processing
rate per hour
Actual capacity
b. Plant utilization = ×100
Designed Capacity
Actual capacity
c. Plant efficiency = ×100
EffectiveCapacity
6. Find the actual weekly output of plant having 80% of efficiency, if it has effective capacity
of 16000 units of weekly production.
 Solution:
Here given,
Plant efficiency = 80%
Effective capacity = 16000 units
Now,
Actual capacity
Plant efficiency = ×100
EffectiveCapacity
Actual output
80 = × 100
16000
Actual output = 12800 units
7. Sara James Bakery produced 148000 rolls last week. The effective capacity is 175000 rolls.
The production line operates 7 days per week with three 8 hours shift per day. The line was
designed to process at the rate of 1200 rolls per hour.

Required:

a. Calculate designed capacity.

b. Determined plant utilization.
c. Calculate plant efficiency.
Solution:
Here given,
Actual capacity = 148000 rolls
Effective capacity = 175000 rolls
Days operated in a week = 7 days
No. of shifts =3
Hours per shift = 8 hours
Processing rate per hour = 1200 rolls

a. Calculation of designed capacity

= days operated in week × no. of shift × hours per shift × processing rate per hour
= 7×3×8×1200
= 201600 rolls
b. Determining plant utilization
Actual capacity
= ×100
Designed Capacity
148000
= ×100
201600
= 73.41%
c. Calculation plant efficiency
Actual capacity
= ×100
EffectiveCapacity
148000
= ×100
175000
= 84.57%
 Chapter 4: Quality Assurance

Preparation of Control charts

A. Control charts for variables

1. Mean charts
  Control limit when value of Z is given

Upper control limit (UCL) = X́ + Zσ x

Control limit (CL) = X́

Lower control limit (LCL) = X́ −Zσ x

 Control limit when value of Z is not given

Upper control limit (UCL) = X́ + A 2 R

Control limit (CL) = X́

Lower control limit (LCL) = X́ −A 2 R

2. Range charts

Upper control limit (UCL) = D4 R

Control limit (CL) =R

Lower control limit (LCL) = D3 R

3. Fraction defective chart

3
Upper control limit (UCL) = p+ √pq
√n
Control limit (CL) =p

3
Lower control limit (LCL) = p− √pq
√n
4. C-chart
Upper control limit (UCL) = C+ 3 √ C

Control limit (CL) =C

Lower control limit (LCL) = C−3 √ C

5. Capability analysis
Upper specification−Lower specification
Process capability ratio (CP) =
6σ

X−LTL UTL− X
Process capability index (CPK) = Min ( Or )
3σ 3σ

Where:
 X́ =
∑X
k
R=
∑R
k
σ
σx=
√n
n = Sample size
k = Sample number
p=
∑p
k
C=
∑C
k
12. The following data give the weight of an automobile part. Five samples of four each item
each were taken on a random sample basis as:

Sample Weight of the parts in ounces

1 10 12 10 12
2 10 12 13 13
3 10 10 9 11
4 11 10 9 14
5 12 12 12 12
i. Construct X and R charts based on these five samples.
ii. What points, if any, have gone out of control?
iii. Comment on your result.
Solution:
Sample Weight of the parts in Mean ( X ) Range
ounces (R)
1 10 12 10 12 11 2
2 10 12 13 13 12 3
3 10 10 9 11 10 2
4 11 10 9 14 11 5
5 12 12 12 12 12 0
Total 56 12
X́ =
∑ X = 56 = 11.20
k 5
R=
∑ R = 12 = 2.4
k 5
a. Construction of X and R charts
Control limit for X chart
Upper control limit (UCL) = X́ + A 2 R = 11.20 + 0.729×2.4 = 12.95

Control limit (CL) = X́ = 11.20

Lower control limit (LCL) = X́ −A 2 R = 11.20 - 0.729×2.4 = 9.45

 Control limit for R chart
Upper control limit (UCL) = D 4 R = 2.282×2.4 = 5.48

Control limit (CL) = R = 2.4

Lower control limit (LCL) = D 3 R = 0×2.4 = 0

b. The any point is not gone out of control limit

c. Based on mean and range chat drawn above, all the mean and range
values are lie with in control limit. So, the process of a company is in
control.
13. In the production of bottles, one standard covers the clarity of glass once the bottles
are cooled. A sample of 200 bottles is inspected from each batch. The results of
inspection of 10 batches are given below

Batch 1 2 3 4 5 6 7 8 9 10
Rejects 21 17 28 12 19 26 11 16 24 14
Compute the 3-sigma control limit for a suitable quality control chart and test the process
for control.
 Solution:
Sample size (n) = 200 bottles
Batch Rejects (d) Fraction
defective
(p) = (d/n)
1 21 0.105
2 17 0.085
3 28 0.14
4 12 0.06
5 19 0.095
6 26 0.13
7 11 0.055
8 16 0.08
9 24 0.12
10 14 0.07
Total 0.94

p=
∑ p = 0.94 = 0.094
k 10
q = 1- p = 1- 0.094 = 0.906
Construction of P-chart

3 3
Upper control limit (UCL) = p+ √ p q = 0.094+ √0.094 × 0.906 = 0.156
√n √ 200
Control limit (CL) = p = 0.094

3 3
Lower control limit (LCL) = p− √ p q = 0.094− √ 0.094 ×0.906 = 0.032
√n √200

Here, all the value of fraction defective are lie between control limit. So, the process
is in control.
14. 10 samples of 15 parts each were taken from an ongoing process to establish a chart
for control. The samples and the no. of defectives in each are shown in the following
table:

Sample 1 2 3 4 5 6 7 8 9 10
Defectives 3 1 0 0 0 2 0 3 4 0
Draw a suitable quality control chart for 95% confidence interval and comment on the result.

Solution:
Sample size (n) = 15
Sample Defectives Fraction defective
(d) (p) = (d/n)
1 3 0.20
2 1 0.067
3 0 0.00
4 0 0.00
5 0 0.00
6 2 0.133
7 0 0.00
8 3 0.20
9 4 0.267
10 0 0.00
Total 13 0.867

p=
∑ p = 0.867 = 0.087
k 10
q = 1- p = 1- 0.087 = 0.913
Construction of P-chart

z 1.65
Upper control limit (UCL) = p+ √ p q = 0.087+ √ 0.087 × 0.913 = 0.207
√n √ 15
Control limit (CL) = p = 0.087

z 1.65
Lower control limit (LCL) = p− √ p q = 0.087− √ 0.087 ×0.913 = 0
√n √15
15. A machine is set to deliver packets of given weight 10 samples of size 5 each were
recorded. Below are given the relevant data:

S.N. 1 2 3 4 5 6 7 8 9 10
Mean ( X ) 15 17 15 18 17 14 18 15 17 16
Range (R) 7 7 4 9 8 7 12 4 11 5
Draw mean and range chart and comment on the state of control.

Solution:
Sample Mean ( X ) Range (R)
1 15 7
2 17 7
3 15 4
4 18 9
5 17 8
6 14 7
7 18 12
8 15 4
9 17 11
10 16 5
Total 162 74
X́ =
∑ = 162 = 16.20
X
k 10
R=
∑ R = 74 = 7.4
k 10
a. Construction of X and R charts
Control limit for X chart
Upper control limit (UCL) = X́ + A 2 R = 16.20 + 0.577×7.4 = 20.47

Control limit (CL) = X́ = 16.20

Lower control limit (LCL) = X́ −A 2 R = 16.20 - 0.577×7.4 = 11.93

 Control limit for R chart
Upper control limit (UCL) = D 4 R = 2.115×7.4 = 15.65

Control limit (CL) = R = 7.4

Lower control limit (LCL) = D 3 R = 0×7.4 = 0

16. The Natraj bulb pen manufacturing process had found that the difference between
upper and lower specification is 0.7. The standard deviation is 0.15. calculate
capability ratio. Interpret meaning of this value.
Solution:
Difference between upper and lower specification (UTL - LTL) = 0.7
Standard deviation (σ ¿ = 0.15
Now,
Upper specification−Lower specification 0.7
Process capability ratio (CP) = =
6σ 6 ×0.15
= 0.78
 The process capability ratio is lower than 1. So, the process is not capable to fulfilled
specification level.
17. The mean weight of the Dabur red paste manufacture in Dabur Nepal Pvt. Ltd. is 250
grams with standard deviation of 0.50 gram for upper and lower tolerance
specification limit are 255 grams and 247 grams respectively. Is the process capable
of producing red pest to the specification? Comment on the process capability.
Solution:
Mean weight ( X ¿ = 250 grams
Upper specification (UTL) = 255 grams
Lower specification (LTL) = 247 grams
Standard deviation (σ ¿ = 0.50
Now,
250−247 255−250
Process capability index (CPK) = Min ( Or ) = 2.00
3 × 0.50 3 × 0.50
The process capability index is higher than 1.33. So, the process is capable to fulfilled
specification level.

Chapter 6: Inventory Management

Case A: Inventory model for independent model

a. Basic economic order quantity model

b. Economic order quantity (EOQ) =
D
2 DS
H √
c. Number of order (n) =
EOQ
D
d. Annual setup cost/Total ordering cost = ×S
EOQ
EOQ
e. Annual holding cost/Total carrying cost = ×H
2
f. Total cost = Total setup cost + Total holding cost + Purchase cost
D EOQ
= × S+ × H + D× P
EOQ 2
Days∨Weeks∨Months∈a year
g. Length of order cycle =
Number of order (n)
h. Re-order level
# Without safety stock = Daily demand × lead time
 # With safety stock = Daily demand × lead time + Safety stock
Where:
EOQ = Economic order quantity
D = Annual demand
S = Setup/Ordering cost per order
H = Holding cost/Carrying cost per unit per year
N = Number of order
11. A Juice Manufacturer monthly uses 50000 units of sodium carbonate. The unit cost is
Rs 2 and shipment cost is Rs 50. The carrying cost is 15% of inventory plus Rs 1
extra storage charge. The procurement time is 10 days. The manufacturer maintains
safety stock of 500 units. The company runs 250 days per year.
Required:
a. Calculate EOQ
b. Optimum no. of order per year.
c. Total cost of inventory
d. Length of order cycle
e. Reorder level.
Solution:
Here given,
Annual demand (D) = 50000×12 = 600000 units
Price per unit (P) = Rs. 2
Shipment/Setup/Ordering cost (S) = Rs. 50
Holding/Carrying cost (H) = 15% of 2 + Rs. 1 = Rs. 1.30 per unit
Procurement/Lead time (L) = 10 days
Safety stock = 500 units
Days operated per year = 250 days
a. Calculation of Economic Order Quantity (EOQ)
=
√ 2 DS
H √
=
2 ×600000 × 50
1.30
b. Optimum number of order (n)
= 6793.66 units = 6794 units

D 600000
= = = 88.31 times
EOQ 6794
c. Total cost of inventory
= Total setup cost + Total holding cost + Purchase cost
D EOQ
= × S+ × H + D× P
EOQ 2

600000 6794
= ×50+ ×1.30 + 600000×2
6794 2

= Rs. 1208831.76

d. Length of order cycle

Days∈a year 250
= = = 2.83 days
Number of order( n) 88.31
 e. Re-order level (ROL)
= Daily demand × Lead time + Safety stock
= 600000/250 × 10 + 500
= 24500 units

b. Production order quantity model

1. Economic production quantity (EOQP) =
D
√ 2 DS
H
×
p
p−u
2. Number of order (n) =
EOQP
3. Total cost = Total setup cost + Total holding cost
D Imax
= × S+ ×H
EOQP 2
EOQP
4. Cycle Time =
p
EOQP
5. Run Time =
u
Where:
EOQP = Economic production quantity
D = Annual demand
S = Setup/Ordering cost per order
H = Holding cost/Carrying cost per unit per year
N = Number of orders
P = Production rate
U = Usage rate
18. A Company of Nepal produces sausage at the rate of 500 units per day. They supply
to local supplier at the rate of 250 units per day. The setup cost is Rs 66 and annual
holding cost of Rs 0.45 per unit. Find the economic production order quantity, cycle
time and run time.

Solution:
Here given,
Annual demand (D) = 250×360 = 90000 units
Production rate (p) = 500 units
Usage rate (u) = 250 units
Setup cost (S) = Rs. 66
Holding cost (H) = Rs. 0.45
a. Calculation of economic production quantity (EOQP)
=
√2 DS
H
b. Cycle time
×
p
p−u
=
√2 × 90000× 66
0.45
×
500
500−250
= 7266.36 units

EOQP 7266.36
= = = 14.53 days
p 500
c. Run time
 EOQP 7266.36
= = = 29.07 days
u 250
c. Quantity discount model
Step 1: To calculate feasible EOQ
a.Calculate EOQ by using holding cost calculated from least price and
check EOQ and price range if match, this is feasible EOQ.
b. If not match, again calculate EOQ by using holding cost from
second least price and repeat up to match price range and EOQ
Step 2: To calculate total cost
a. At feasible EOQ
D EOQ
= × S+ × H + D× P
EOQ 2
b. At each price ranges.
D Q
= × S+ × H + D× P
Q 2
19. ABC Company uses 4000 units a year. A supplier of ABC Company approached the
quantity discount offer with following price schedule.
Ranges of Units Unit Price
(Rs)
1 to 499 90
500 to 999 85
1000 to more 82

It costs approximately Rs 18 to prepare an order and receive it, and carrying costs are 18%
of purchase price per unit on an annual basis. Determine the optimal order quantity.

Solution:
Here given,
Annual demand (D) = 4000 units
Setup cost (S) = Rs. 18

Holding cost (H) = 18%

Step 1: To calculate feasible EOQ

a. Holding cost from first least price Rs.82 (H = 18% of 82 = Rs. 14.76
=
√2 DS
H
=
√
2 × 4000 ×18
14.76
= 98.77 units
This is not feasible EOQ because the 98.77 units cannot be purchased
at Rs. 82.
b. Holding cost from second least price Rs 85 (H= 18% of 85 = Rs. 15.30
=
√2 DS
H
=
√
2 × 4000 ×18
15.30
= 97.01 units
This is not feasible EOQ because the 97.01 units cannot be purchased
at Rs. 85.
 c. Holding cost from third least price Rs 90 (H= 18% of 90 = Rs. 16.20
=
√2 DS
H
=
√2 × 4000 ×18
16.20
= 94.28 units
This is feasible EOQ because the 94.28 units can be purchased at Rs.
90.
Step 2: To calculate total cost
a. At feasible EOQ (EOQ = 94.28 units)
D EOQ
= × S+ × H + D× P
EOQ 2
4000 94.28
= × 18+ ×16.20 + 4000× 90
94.28 2
= Rs. 361527.35
b. At first price break quantity (Q = 500 units)
D Q
= × S+ × H + D× P
Q 2
4000 500
= × 18+ ×15.20 + 4000× 85
500 2
= Rs. 343944
c. At second price break quantity (Q = 1000 units)
D Q
= × S+ × H + D× P
Q 2
4000 1000
= × 18+ ×14.79 + 4000× 82
1000 2
= Rs. 335467
Case B: Probabilistic model and safety stock

Calculation of reorder point

a. Demand is variable and lead time is constant

= Daily demand × lead time + safety stock
= Ԁ×L +ɀ×σdLT
b. Lead time is variable and demand is constant
= Daily demand × lead time + safety stock
= Ԁ×L +ɀ ×Ԁ ×σLT
c. Both demand and lead time are variable
= Daily demand × lead time + safety stock
= Ԁ×L + ɀ √ L ×σ 2 d +Ԁ 2 × σ 2< ¿ ¿
Where:
Ԁ = Average/mean demand
L = Lead time
ɀ = value of stock out risk at normal distribution table
σdLT = Deviation of demand during lead time = σ√ L
20.
21. The daily demand of a product is 120 units with a standard deviation of 30 units. The
lead time is 7 days. If company maintains 1% risk of stocking out. What is the reorder
point? How much units are considered safety stock?
 Solution:
Here given,
Daily demand (Ԁ) = 120 units
Deviation of demand (σd) = 30 units
Stock out risk = 1% i.e.service level = 99% (ɀ = 2.33)
Lead time (L) = 7 days
Deviation of demand during lead time (σ dLT) = σ√ L = 30√ 7= 79.37 units
a. Calculation of reorder point
= Ԁ×L +ɀ×σdLT = 120×7 + 2.33×79.37 = 1024.93 units
b. Safety stock
= ɀ×σdLT
= 2.33×79.37 = 184.93 units
22. The XYZ Hotel uses approximately 600 bars of soap each day and this tend to be
fairly constant. Lead time for shop delivery is normally distributed with a mean of 6
days and standard deviation of 2 days. A service level of 90% is desired. Find the
ROP.
Solution:
Here given,
Daily demand (Ԁ) = 600 bars
Deviation of lead time (σLT) = 2 days
Stock out risk = 10% i.e.service level = 90% (ɀ = 1.28)
Lead time (L) = 6 days
Now, calculation of reorder point (ROP)
= Ԁ×L +ɀ ×Ԁ ×σLT
= 600 × 6 + 1.28× 600×2
= 5136 units
23. The Marko Polo Hotel replaces broken glasses at the rate of 25 per day with a
standard deviation of 3 glasses per day. Lead time is normally distributed with an
average of 10 days and a standard deviation of 2 days. What ROP should be used to
achieve a service level of 95%?
Solution:
Here given,
Daily demand (Ԁ) = 25 glasses
Standard deviation (σd) = 3 glasses
Lead time (L) = 10 days
Deviation of lead time (σLT) = 2 days
Service level = 95% (ɀ = 1.65)

Now, calculation of reorder point (ROP)

= Ԁ×L +ɀ√ L× σ 2 d +Ԁ 2 × σ 2 <¿ ¿

= 25×10 + 1.65× √ 10 ×32 +252 ×22
= 333.97 units.

Case c: Fixed period model

Calculation of reorder quantity

 = Daily demand × (lead time + Review time) + safety stock - OH
= Ԁ×(T+L) +ɀ×σ(T+L) - OH
24. The mean demand per day of certain product is 200 units with a standard deviation of
40 units. The review period is 14 days and the lead time is 7 days. At the time of
review 150 units are in stock. If only 1% risk of stocking out is acceptable, how many
units should be ordered?
Solution:
Here given,
Daily demand (Ԁ) = 200 units
Standard deviation (σ) = 40 units
Review period (T) = 14 days
Lead time (L) = 7 days
On hand inventory (OH) = 150 units
Deviation during review and lead time σ(T+L) = σ√ T + L = 40√ 14+7
= 183.33 units
Now, calculation of reorder quantity (ROQ)
= Ԁ× (T+L) +ɀ×σ (T+L) – OH
= 200 × (14+7) + 2.33× 183.3 – 150
= 4477.09 units

Chapter 7: Operation Scheduling

Case A: Sequencing n jobs on two machines: Johnson’s rule

1. All jobs with time required on machine are listed.

2. Select the job with shortest work center or machine
3. Eliminate schedule job and repeat the process for each remaining job.
20. The following set of seven jobs is to be processed through two work centers at a
printing press. The sequence is first printing, then binding. Processing time at each of
the work center is shown in the following table:
 Jobs Printing (Hours) Binding (Hours)
A 15 3
B 7 9
C 4 10
D 7 6
E 10 9
F 4 5
G 7 8
Required:

i. What is the optimal sequence for these jobs to be scheduled?

ii. Chart these jobs through the two work centers.
iii. What is total length of time
iv. Calculate the total idle time in binding shop
Solution:
Jobs Printing (Hours) Binding (Hours) Remarks
A 15 3 1st
B 7 9 5th
C 4 10 2nd
D 7 6 4th
E 10 9 7th
F 4 5 3rd
G 7 8 6th
a. Preparation of optimal sequence of jobs

C F B G E D A
Therefore, optimal schedule = C-F-B-G-E-D-A

c. Total length of time = 57 hours

d. Idle time in binding shop = 4 +3 = 7 hours
Case B: Assignment Method
 1. Convert maximization problem into minimization
2. Make row operation
3. Make column operation
4. Checking optimization and assigning jobs.
21. A Medical Testing Company wishes to assign a set of jobs to a set of machines. The
following table provides the production data of each machine when performing a
specific job.
Machine
Job A B C D
1 7 9 8 10
2 10 9 7 6
3 11 5 9 6
4 9 11 5 8
Required:

a. Determine the assignment of jobs to machines that will maximize total production
b. Optimum production unit
Solution:

The given assignment problem is the case of maximization. So, we can convert it into
minimization by subtracting all the values from maximum value in the matrix.

Assignment table 1
Machine
Job A B C D
1 4 2 3 1
2 1 2 4 5
3 0 6 2 5
4 2 0 6 3
Making row operation
R1 = R1 – 1, R2 = R2 – 1, R3 = R3 – 0, R4 = R4 – 0
Assignment table 2
Machine
Job A B C D
1 3 1 2 0
2 0 1 3 4
3 0 6 2 5
4 2 0 6 3
Making column operation
C1 = C1 – 0, C2 = C2 – 0, C3 = C3 – 2, C4 = C4 – 0
Assignment table 3
Machine
Job A B C D
1 3 1 0 0
2 0 1 1 4
3 0 6 0 5
4 2 0 4 3
 Here, minimum numbers of line to cover maximum no. of zeros are equal to no.
of rows or column. So, this solution is optimized. The optimum assignment
schedule and optimum production are:

Job Machine Production

1 D 10
2 A 10
3 C 9
4 B 11
Optimum production 40 units

Case C: priorities rules and scheduling criteria

1.First come first serve rule (FCFS)

2.Shortest processing time (SPT)
3.Earliest due date (EDD)
4.Longest processing time (LPT)
'
Due date−toda y s date
5. Critical ratio (CR) =
Work time remaining
Formula used in Scheduling:
1. Average completion time =
∑ of total flow time
no . of jobs
Total job work time
2. Utilization = ×100
∑ of total flow time
3. Average no. of jobs/WIP inventory =
∑ of total flow time
Total job work time
Total late days
4. Average job lateness =
no . of jobs
22. The following table shows due date and work days remaining for each job which are
on order. You are requested to schedule following three jobs based on the critical
ratio. You are informed that today is day 1 on production schedule.
Jobs Due date Workdays remaining
A 5 3
B 4 4
C 6 5
Solution:

Today’s date = day 1

'
Due date−toda y s date
Now calculation of critical ratio (CR) =
Work time remaining

5−1
For Job A = = 1.33
3
 4−1
For Job B = = 0.75
4

6−1
For Job C= =1
5

Schedule of Job = B-C-A

23. ABC Incorporation has four jobs on order, as shown in the following table. Today is
day 205 on the schedule. In what sequence would the jobs be ranked according to the
following decision rules:
Jobs Due date Duration (Days)
A 212 6
B 209 3
C 208 3
D 210 8
Which is the best and why? Under:
i. FCFS rules
ii. SPT rules
iii. LPT rules
iv. EDD rules
v. Critical ratio
Solution:

Today’s date = day 205

Jobs Remaining Due Date Duration (Days)

Due date – Today’s date
A 7 6
B 4 3
C 3 3
D 5 8
a. Sequencing jobs under first come first serve rule (FCFS) = A-B-C-D
Job Duration Job flow Rem. Due date Lateness if +
time (JFT) (RDD) (JFT-RDD)
A 6 6 7 0
B 3 9 4 5
C 3 12 3 9
D 8 20 5 15
Total 20 47 29
Now,
Average completion time =
∑ of total flow time = 47 = 11.75 days
no . of jobs 4

Total job work time

Utilization = ×100 = 20 ×100 = 42.55%
∑ of total flow time 47
 Average no. of jobs/WIP inventory =
∑ of total flow time = 47 = 2.35 jobs
Total job work time 20

Total late days 29

Average job lateness = = = 7.25 days
no . of jobs 4

b. Sequencing jobs under shortest processing time (SPT) = B-C-A-D

Job Duration Job flow Rem. Due date Lateness if +
time (JFT) (RDD) (JFT-RDD)
B 3 3 4 0
C 3 6 3 3
A 6 12 7 5
D 8 20 5 15
Total 20 41 23
Now,
Average completion time =
∑ of total flow time = 41 = 10.25 days
no . of jobs 4
Total job work time 20
Utilization = × 100 = 48.78%
∑ of total flow time = 41
Average no. of jobs/WIP inventory =
∑ of total flow time = 41 = 2.05 jobs
Total job work time 20
Total late days 23
Average job lateness = = = 5.75 days
no . of jobs 4
c. Sequencing jobs under longest processing time (LPT) = D-A-B-C
Job Duration Job flow Rem. Due date Lateness if +
time (JFT) (RDD) (JFT-RDD)
D 8 8 5 3
A 6 14 7 7
B 3 17 4 13
C 3 20 3 17
Total 20 59 40
Now,
Average completion time =
∑ of total flow time = 59 = 14.75 days
no . of jobs 4
Total job work time 20
Utilization = ×100 = 33.90%
∑ of total flow time = 59
Average no. of jobs/WIP inventory =
∑ of total flow time = 59 = 2.95 jobs
Total job work time 20
Total late days 40
Average job lateness = = = 10 days
no . of jobs 4
d. Sequencing jobs under earliest due date (EDD) = C-B-D-A
Job Duration Job flow Rem. Due date Lateness if +
time (JFT) (RDD) (JFT-RDD)
C 3 3 3 0
 B 3 6 4 2
D 8 14 5 9
A 6 20 7 13
Total 20 43 24
Now,
Average completion time =
∑ of total flow time = 43 = 10.75 days
no . of jobs 4
Total job work time 20
Utilization = × 100 = 46.51%
∑ of total flow time = 43
Average no. of jobs/WIP inventory =
∑ of total flow time = 43 = 2.15 jobs
Total job work time 20
Total late days 24
Average job lateness = = = 6 days
no . of jobs 4
e. Sequencing jobs under critical ratio (CR)
'
Due date−toda y s date
CR =
Work time remaining
212−205
Job A = = 1.17
6
209−205
Job B = = 1.33
3
208−205
Job C = = 1.0
3
210−205
Job D = = 0.625
8
The sequence of job = D-C-A-B
Job Duration Job flow Rem. Due date Lateness if +
time (JFT) (RDD) (JFT-RDD)
D 8 8 5 3
C 3 11 3 8
A 6 17 7 10
B 3 20 4 16
Total 20 56 37
Now,
Average completion time =
∑ of total flow time = 56 = 14 days
no . of jobs 4
Total job work time 20
Utilization = ×100 = 35.71%
∑ of total flow time = 56
Average no. of jobs/WIP inventory =
∑ of total flow time = 56 = 2.8 jobs
Total job work time 20
Total late days 37
Average job lateness = = = 9.25 days
no . of jobs 4
Summarizing the result of all criteria in following table
Criteria FCFS SPT LPT EDD CR
Average Completion time 11.75 days 10.25 days 14.75 days 10.75 days 14 days
 Utilization 42.55% 48.78% 33.90% 46.51% 35.71%
WIP inventory 2.35 jobs 2.05 jobs 2.95 jobs 2.15 jobs 2.8 jobs
Average lateness 7.25 days 5.75 days 10 days 6 days 9.25 days
Decision:
Here, all the criteria under SPT rule are satisfied. So, SPT rule is best among
various rules.
Case D: Developing work force schedule

1. Find out minimum no. of employees needed each day of week

2. Calculate the no. of employees needed for each pair of days during the pay
week.
3. Find the pair of day with the lowest total needed.
4. Update the no. of employee needed to each day by reducing 1 except assigned
day.
5. Repeat above steps until satisfying all needs.
24. Given the following demand for waiter and waitresses at A Hotel, determine the
minimum wait staff needed with a policy of two consecutive days off.
Days of the week M T W Th F Sa Su
Number of staffs needed 6 5 5 5 6 4 3

Solution:

a. Minimum no. of employee needed for each day

Day M T W Th F Sa Su
No. of staff 6 5 5 5 6 4 3
b. Number of employees needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 11
Tuesday &Wednesday 10
Wednesday & Thursday 10
Thursday & Friday 11
Friday & Saturday 10
Saturday & Sunday 7
Finding the lowest staffs needed pair of days i.e., Saturday & Sunday. These
are days off for employee 1. Other days, employee 1 works.
Updating employees needed by reducing 1 except off days i.e., Saturday and
Sunday.
c. Again, minimum no. of employee needed for each day
Day M T W Th F Sa Su
No. of staff 5 4 4 4 5 4 3
d. Number of employees needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 9
Tuesday &Wednesday 8
Wednesday & Thursday 8
 Thursday & Friday 9
Friday & Saturday 9
Saturday & Sunday 7
Finding the lowest staffs needed pair of days i.e., Saturday & Sunday. These
are days off for employee 2. Other days, employee 2 works.
Again, updating employees needed by reducing 1 except off days i.e. Saturday
and Sunday.
e. Again, minimum no. of employee needed for each day
Day M T W Th F Sa Su
No. of staff 4 3 3 3 4 4 3
f. Number of employee needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 7
Tuesday &Wednesday 6
Wednesday & Thursday 6
Thursday & Friday 7
Friday & Saturday 8
Saturday & Sunday 7
Tuesday and Wednesday is lowest employees needed pair of day. These are
days off for employee 3. Other days, employee 3 works.
Again, updating employees needed by reducing 1 except off days i.e. Tuesday and
Wednesday.
g. Again, minimum no. of employee needed for each day
Day M T W Th F Sa Su
No. of staff 3 3 3 2 3 3 2
h. Number of employee needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 6
Tuesday &Wednesday 6
Wednesday & Thursday 5
Thursday & Friday 5
Friday & Saturday 6
Saturday & Sunday 5
Wednesday and Thursday is lowest employees needed pair of days. These are
days off for employee 4. Other days, employee 4 works.
Again, updating employees needed by reducing 1 except off days i.e. Wednesday
and Thursday.
i. Again, minimum no. of employee needed for each day
Day M T W Th F Sa Su
No. of staff 2 2 3 2 2 2 1
j. Number of employee needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 4
Tuesday &Wednesday 5
Wednesday & Thursday 5
Thursday & Friday 4
 Friday & Saturday 4
Saturday & Sunday 3
Saturday and Sunday is lowest employees needed pair of days. These are days
off for employee 5. Other days, employee 5 works.
Again, updating employees needed by reducing 1 except off days i.e. Saturday
and Sunday.
k. Again, minimum no. of employee needed for each day
Day M T W Th F Sa Su
No. of staff 1 1 2 1 1 2 1
l. Number of employee needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 2
Tuesday &Wednesday 3
Wednesday & Thursday 3
Thursday & Friday 2
Friday & Saturday 3
Saturday & Sunday 3
Thursday and Friday is lowest employees needed pair of days. These are days
off for employee 6. Other days, employee 6 works.
Again, updating employees needed by reducing 1 except off days i.e. Thursday
and Friday.
m. Again, minimum no. of employee needed for each day
Day M T W Th F Sa Su
No. of staff 0 0 1 1 1 1 0
n. Number of employee needed for each pair of days
Pair of days Total no. of staffs needed
Monday & Tuesday 0
Tuesday &Wednesday 1
Wednesday & Thursday 2
Thursday & Friday 2
Friday & Saturday 2
Saturday & Sunday 1
Monday and Tuesday is lowest employees needed pair of days. These are days
off for employee 7. Here, fulfilled need of all days. Now, Preparation of
Workforce Schedule.
Employee M T W Th F Sa Su
1 X X X X X Off Off
2 X X X X X Off Off
3 X Off Off X X X X
4 X X Off Off X X X
5 X X X X X Off Off
6 X X X Off Off X X
7 Off Off X X X X X