INDIAN INSTITUTE OF TECHNOLOGY, ~GPUR

Department of Industrial Engineering and Management

Mid Spring Semester Examination, 2014
. Third Year B.Tech.(H)/Dual Degree in IM

Subject Number: IM31010 Subject Name: Management of Inventory Systems

Full Marks: 60 Time: 2 Hours
Date, Time, Venue ofExamination:21.02.2014, 14-16 Hrs,.S-302/NR221
Number of Students Appearing in the Examination: 44

Instructions: 1. Attempt all questions. .

2. Maximum marks are shown against each question.·
3. Answers should be short, and to the point. "
4. Statistical tables may be used wherever required.

Q.1 (a) Cite two industrial examples- of 'inventory problem under uncertainty' with
single item. Formulate and solve such a problem under the assumption of (i)
symmetry and (ii) deviation of mean on one side. (2 + 2 + 3)
(b) Compare and contrast Q- and P- system of inventory control. When do you
use a combination of both these systems? What is an exact method for
determining parameter values of an inventory control system? (3 + 1 + 2)
(c) Why do you use 'selective inventory control'? Distinguish between 'safety'
and 'excess' stock. (1 + 1)

Q.2 (a) Determine the parameters of a continuous review inventory control system of
an item with demand of the item considered deterministic and shortages are
allowed. Assume all necessary variables and parameters as needed for
computation. (5)
(b) The demand for an item is 20,000 units per year, and.there are 250 working
days per year. The production rate is I 00 units per day, and the lead time is
four days. The unit production cost is Rs 2,500, the holding cost is Rs 500 per
unit per year, and the setup cost is Rs 1,000 per run. What.are the economic
production quantity, the number of runs per year, the reorder point, and the
minimum total annual cost? (5)
(c) A mobile home fabricator has an annual demand of 10,000 units for a small
refrigerator. The supplier sells .the units for Rs 6,000 in order quantities below
125 and for Rs 5,000 in order quantities above 124 units. The order cost is Rs
150, and the annual holding cost is 10% of unit value. (a) In what quantities
should the item be purchased with an all-units quantity discount? (b) What
will be the maximum inventory level? (5)

PTO
 (2)
'>..

Q.3 (a) Suppose that the pertm!t overstock cost for an item is Rs 500 and the per unit
understock cost is Rs 200. Assume that demand is symmetrically distributed
with ,mean of 100 and standard deviation of 10. How much stock should be
ordered? (5)
(b) Does the effect of errors on the minimum total variable cost tend to be
· greater when the EOQ has been overestimated or underestimated? When
would negative reorder points occur in a backordering situation? How would
you determine order quantity when incremental quantity discounts are
offered? (4 + 2 + 4)

Q.4 (a) Derive and state the use of 'optimal policy curve' in inventory control.
(2 +2)
(b) A company maintains inventory on three items with the following
characteristics:

Item Yearly Demand Price (in Rs)

1 3,600 20
2 24,000 5
3 600 25

Current policy is to order each item once each month.

i) What is the optimal ordering policy which gives the same total number of
orders? ·
ii) What ·is the optimal ordering policy which gives the same total average
inventory?
iii) What is the equation of the optimal policy curve? (4 + 4 + 3)