Manufacturing Model

With shortage Allowed

Reviewing some previous
concepts
• Inventory Costs:
 Item cost = C1
 Ordering cost= C2
 Holding cost= C3
 Shortage cost= C4
Reviewing some previous
concepts
• EOQ Models Or Inventory Models:
 There are two things

Q(Quantity)

Time(t)
Model 3: Manufacturing model
with shortage Allowed
1. Model Explanation
2. Graphical Representation
3. Example
Model Explanation:
• You are not Manufacturing things but taking Orders
• Shortage
• You start Manufacturing and selling
• Manufacturing rate > Demand rate
• Inventory goes on increasing day by day
• Now you want to use the inventory
• Meanwhile you have to close the production otherwise inventory goes on
increasing
• Inventory is now Zero but you are still selling
• Again Shortage
 Example
 The demand for an item in a company is 10000 units/year and the company
can produce at the rate of 20,000 per month. The cost of one set up is Rs. 300
and the holding cost of 1 unit per month is Rs 4.The shortage cost is Rs 25 per
unit per year.
Determine:
(a) The optimum manufacturing quantity.
(b) The time between orders.
(c) The number of orders/year.
(d) The optimum shortage.
(e) The maximum inventory.
(f) The optimum annual cost if the cost of the item per unit is Rs. 2.