Optimization Of

Deteriorating Items
Production Inventory
BY
Rohit Munda(Admn. No. 13JE0012)
Ajay Pal Singh(Admn. No. 14JE701)

By

Guided
Prof. Bani Mukherjee

CONTENT
Introduction
Operations

Research Activities
Management Science
Uses Of Management Science
Inventory
Inventory Model
Production Inventory
Basic Preliminaries
Demand
Deterioration
Time Horizon & Lead Time
Cost
Replenishment
Effectiveness and efficiency of Operations Research
Future work
Reference

INTRODUCTION
Operations

Research (OR)
describes the discipline focused
on the science of decision making
.
Operations Research combines
Mathematics , Statistics ,
Computer Science , Physics ,
Engineering , Economics and
Social Science to solve real world
complex Problem .

ACTIVITIES
The activities of Operational
Research includes the following :
Inventory Planning
Production Planning
Transportation
Communication Operations
Computer Operations
Financial Assets
Risk Management etc.

MANAGEMENT SCIENCE
Management Science is concerned
with developing and applying
mathematical models and
concepts to solve managerial
problems as well as designing and
developing new and better model
of organizational excellence.

The application of Operation

Research or the application of
Management Science includes as
follows :
Scheduling Airlines
Deciding appropriate place to
site new facilities
Identifying possible future
development
paths
Identifying and understanding
the strategy adopted by
companies for their information
system.

INVENTORY
An inventory is defined as a stock of
goods which is held for the purpose of
future production or sales.
Stock of goods may be kept in
following forms :
1. Raw-materials ,
2. Partly finished items,
3. Finished (or prepared ) goods ,
4. Spare parts etc.

INVENTORY MODELS

Stochastic Models

Deterministic
Models
Demand is
assumed to be
known

Example:
Economic lot-size
formulation

Demand for a
period is a random
variable having a
known probability
distribution.
Example: A
single-period
model

PRODUCTION INVENTORY

Production Inventory refers to the

level of materials and supplies on
hand for use in manufacturing
production.

Basic
Preliminaries
Some of the Basic Preliminaries are:

Demand
Deterioration
Time horizon & Lead time
Ordering Cost & Setup Cost
Holding Cost / Storage Cost
Purchase Cost / Production Cost & Shortag
Cost
Transportation Cost
Replenishment

DEMAND
Demand

: Demand is the amount

of items required in a specified
period which is not necessarily
equal to the amount of item sold
as some demand may go
unfulfilled because of decay
shortage or delay .

Demand is of two types :

Deterministic Demand

DETERIORATION
Deterioration

: Deterioration is
defined as decay , damage ,
spoilage , evaporation ,
obsolescence , pilferage , loss of
utility or loss of marginal value of
a commodity that results in
decreasing usefulness .

For

example Drugs ,
Pharmaceuticals , Radioactive

Time

Horizon : It is the time duration

during which an optimal policy is to be
determined to maximize the profit and
minimize the total inventory cost .

Lead

Time : The lead time is the time

from the ordering decision until the
ordered amount is available on shelf .

COST
Following types of cost are
witnessed :
Ordering

Cost
Setup Cost
Holding Cost / Storage Cost
Purchase Cost / Production Cost
Shortage Cost
Transportation Cost

Ordering

Cost : This is the cost

associated with placing an order
to an outside supplier or
releasing a production order to a
manufacturing shop .

Setup

Cost : A common
assumption is that the ordering
cost consists of a fixed cost that
is independent of the amount
ordered , and a variable cost that
depends on the amount ordered .

HOLDING COST / STORAGE COST

Holding

Cost / Storage Cost : The cost

associated with carrying of stock of items for
given unit of time .
It Consist of :
Storage cost for providing ware house space
to store the product .
Inventory handling cost for payment of
salaries to employee .
Interest on capital investment .
Insurance cost against possible loss from fire
or other form of damage .

Purchase

Cost / Production Cost : The

purchase cost is the amount paid to
supplier for production received or
production cost if manufactured .

Shortage

Cost : When a customer

seeks the product and finds the
inventory empty , the demand can
either go unfulfilled or be satisfied
later . When the product becomes
available . The former case is called
a lost sale , and the later is called a
back order

TRANSPORTATION COST
Transportation

Cost : The cost

associated with the
transportation of material from
supplier to the organisation .
It Depends Upon :
Mode of Transportation
Amount of Material
The distance of supplier to ware
house

REPLENISHMENT
Replenishment

: It is the rate of
quantities added to the stock .
The replenishment may be finite
or infinite depending upon the
nature of inventory system .

The Study of Inventory focus on the

effectiveness and efficiency of the
following :
Decrease

Cost or Investment
Increase Revenue or Return on
Investment
Increase Market Share
Manage and Reduce Risk
Improve Quality
Achieve Improved Utilization from
Limited Resources etc.

FUTURE WORK
In the near future we intend to carry work with
help of all the theories mentioned in this
presentation and by next semester shall be able
to present our work on the following:
The formulation of Inventory Model
Solution of various Differential Equations with
corresponding boundary conditions
Analysis
1.Graphical Analysis
2. Numerical Analysis
3. Sensitivity Analysis

REFERENCE
Operations

Research by Hillier and

Lieberman, CBS Publishers & Distributors.
Operations Research by H.A. Taha, Prentice
Hall
Operations Research by Kanti Swarup,
P K Gupta and Mon Mohan, Sultan Chand &
Sons
Operations Research by R K Gupta, Krishna
Prakashan
Operations Research by Kusum Deep &
Others

THANKYOU