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GNDU QUESTION PAPERS 2021
BBA 4
th
SEMESTER
Paper–BBA–404 : PRODUCTION AND OPERATIONS MANAGEMENT
Time Allowed: 3 Hours Maximum Mark 50
Note: Aempt Five quesons in all, selecng at least One queson from each secon. The
Fih queson may be aempted from any secon. All quesons carry equal marks.
1. A project manager is required to implement the following project :
Acvity
Opmisc me (in
days)
Most Likely me (in
days)
Pessimisc me (in
days)
1–2
4
8
12
2–3
1
4
7
2–4
8
12
16
3–5
3
5
7
4–5
0
0
0
4–6
3
6
9
5–7
3
6
9
5–8
4
6
8
7–9
4
8
12
8–9
2
5
8
9–10
4
10
16
6–10
4
6
8
(i) Determine the crical path.
(ii) If a 42 days deadline is imposed, what is the probability of compleng the project
within that me ?
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(iii) If a project manager wants to be 99% sure to complete the project on the scheduled
date, how many days before that date should he begin the project ?
2. Write short notes on the following :
(a) Various factors aecng make or buy decision.
(b) Dierence between PERT and CPM.
3. Outline various factors which can aect producvity in your business.
4. What is work measurement ? What are its objecves? Briey explain various techniques
of work measurement.
5. A company uses annually 42000 units of an item. Cost per unit is Rs.2 Each order costs
Rs. 42 and inventory carrying cost is 15% p.a. of inventory value.
(a) Find E.O.Q.
(b) If the procurement me is 10 days and safety stock is 400 units, nd recorder level,
maximum, minimum and average inventory.
6. Write short notes on the following :-
(a) ABC classicaon of inventory.
(b) Carrying and ordering costs of inventory with examples.
7. What are the various components of supply chain management?
8. TQM is combinaon of various principles which are aimed to establish and deliver
higher customer value. Explain the statement while outlining
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GNDU Answer PAPERS 2021
BBA 4
th
SEMESTER
Paper–BBA–404 : PRODUCTION AND OPERATIONS MANAGEMENT
Time Allowed: 3 Hours Maximum Mark 50
Note: Aempt Five quesons in all, selecng at least One queson from each secon. The
Fih queson may be aempted from any secon. All quesons carry equal marks.
1. A project manager is required to implement the following project :
Acvity
Opmisc me (in
days)
Most Likely me (in
days)
Pessimisc me (in
days)
1–2
4
8
12
2–3
1
4
7
2–4
8
12
16
3–5
3
5
7
4–5
0
0
0
4–6
3
6
9
5–7
3
6
9
5–8
4
6
8
7–9
4
8
12
8–9
2
5
8
9–10
4
10
16
6–10
4
6
8
(i) Determine the crical path.
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(ii) If a 42 days deadline is imposed, what is the probability of compleng the project
within that me ?
(iii) If a project manager wants to be 99% sure to complete the project on the scheduled
date, how many days before that date should he begin the project ?
Ans: Step 1: Understand What We Need to Do
We are given a project with different activities and three time estimates:
• Optimistic (a) → Best-case time
• Most likely (m) → Normal time
• Pessimistic (b) → Worst-case time
Using these, we calculate:
Expected Time Formula:
Variance Formula:
Step 2: Calculate Expected Time for Each Activity
Let’s compute key expected times (rounded):
Activity
a
m
b
Expected Time (te)
1–2
4
8
12
8
2–3
1
4
7
4
2–4
8
12
16
12
3–5
3
5
7
5
4–5
0
0
0
0
4–6
3
6
9
6
5–7
3
6
9
6
5–8
4
6
8
6
7–9
4
8
12
8
8–9
2
5
8
5
9–10
4
10
16
10
6–10
4
6
8
6
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Step 3: Find All Possible Paths
Now imagine the project like multiple roads leading to the destination (node 10).
Possible Paths:
1. 1–2–3–5–7–9–10
= 8 + 4 + 5 + 6 + 8 + 10 = 41 days
2. 1–2–3–5–8–9–10
= 8 + 4 + 5 + 6 + 5 + 10 = 38 days
3. 1–2–4–5–7–9–10
= 8 + 12 + 0 + 6 + 8 + 10 = 44 days
4. 1–2–4–5–8–9–10
= 8 + 12 + 0 + 6 + 5 + 10 = 41 days
5. 1–2–4–6–10
= 8 + 12 + 6 + 6 = 32 days
(i) Critical Path
The longest path = Critical Path
So,
✔ Critical Path = 1–2–4–5–7–9–10
✔ Project Duration = 44 days
Step 4: Calculate Variance on Critical Path
Now calculate variance for activities on critical path:
Activity
Variance
1–2
((12−4)/6)² = 1.78
2–4
((16−8)/6)² = 1.78
4–5
0
5–7
((9−3)/6)² = 1
7–9
((12−4)/6)² = 1.78
9–10
((16−4)/6)² = 4
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Total Variance:
= 1.78 + 1.78 + 0 + 1 + 1.78 + 4
= 10.34
Standard Deviation:
≈ 3.21 days
Step 5: Probability of Completing in 42 Days
We use Z-score formula:
Where:
• T = 42 days
• Te = 44 days
• σ = 3.21
Calculate Z:
Z = (42 − 44) / 3.21
= −2 / 3.21
≈ −0.62
From Normal Table:
Z = −0.62 → Probability ≈ 0.2676
(ii) Final Answer:
✔ Probability of completing within 42 days = 0.27 (27%)
This means:
The project manager has only 27% chance of finishing on time → quite risky!
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Step 6: For 99% Confidence
We now reverse the problem.
We want:
✔ Probability = 99%
✔ Corresponding Z ≈ 2.33
Formula:
T = Te + Zσ
T = 44 + (2.33 × 3.21)
= 44 + 7.48
≈ 51.5 days
(iii) Final Answer:
✔ Required completion time = ≈ 52 days
So,
If deadline is 44 days, manager must start earlier by:
52 − 44 = 8 days
2. Write short notes on the following :
(a) Various factors aecng make or buy decision.
(b) Dierence between PERT and CPM.
Ans: (a) Factors Affecting Make-or-Buy Decision
The make-or-buy decision is a crucial managerial choice: should a company produce a
product/component internally (“make”) or purchase it from an external supplier (“buy”)?
This decision affects costs, quality, flexibility, and long-term competitiveness.
Key Factors Influencing Make-or-Buy Decisions
1. Cost Considerations
o If producing internally is cheaper than buying, firms may prefer to make.
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o Conversely, if external suppliers can provide at lower cost due to economies
of scale, buying is better.
o Managers must compare direct costs (materials, labor) and indirect costs
(overheads, storage).
2. Availability of Capital and Resources
o Making requires investment in machinery, skilled labor, and facilities.
o If the company lacks resources or capital, buying may be more practical.
3. Quality Requirements
o If the company can ensure higher quality by making internally, it may prefer
to do so.
o If suppliers have better expertise or technology, buying ensures superior
quality.
4. Core Competencies
o Firms should focus on activities that are their strengths.
o Non-core activities are often outsourced to save time and resources.
5. Capacity Utilization
o If the company has idle capacity, making internally helps utilize resources.
o If capacity is already stretched, buying avoids overburdening facilities.
6. Reliability of Suppliers
o If suppliers are dependable in terms of delivery and quality, buying is safe.
o If supply chains are uncertain, making internally reduces risk.
7. Flexibility and Speed
o Making internally may allow quicker adjustments to design changes.
o Buying may be faster if suppliers already have production systems in place.
8. Confidentiality and Security
o If the product involves sensitive technology or trade secrets, making
internally protects intellectual property.
o Buying may risk leakage of proprietary information.
9. Market Conditions
o In highly competitive markets, firms may outsource to reduce costs and
remain agile.
o In stable markets, firms may prefer in-house production for consistency.
10. Long-Term Strategic Goals
• Firms may choose to make if they want to build long-term capabilities.
• Buying may be chosen if the firm wants to remain lean and flexible.
Summary of Make-or-Buy Decision
The decision is not purely financial—it involves strategic, operational, and risk
considerations. A balanced evaluation of costs, competencies, supplier reliability, and long-
term goals determines the best choice.
(b) Difference Between PERT and CPM
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Both PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method)
are project management tools used for planning, scheduling, and controlling complex
projects. While they look similar, they differ in focus, application, and methodology.
1. Origin and Purpose
• PERT: Developed in the 1950s by the U.S. Navy for the Polaris missile project. Its
purpose was to handle uncertainty in project scheduling.
• CPM: Developed around the same time by DuPont for construction and maintenance
projects. Its purpose was to minimize costs and time in predictable projects.
2. Nature of Projects
• PERT: Best suited for research and development projects where activity times are
uncertain.
• CPM: Best suited for construction or manufacturing projects where activity times are
fairly certain.
3. Focus
• PERT: Focuses on time. It helps estimate project duration under uncertainty.
• CPM: Focuses on cost and time trade-offs. It helps optimize resource allocation and
minimize costs.
4. Estimation of Activity Time
• PERT: Uses three time estimates—optimistic (O), pessimistic (P), and most likely (M).
Expected time is calculated using:
• CPM: Uses a single deterministic time estimate for each activity.
5. Approach
• PERT: Probabilistic approach, dealing with uncertainty.
• CPM: Deterministic approach, assuming certainty in activity durations.
6. Application
• PERT: Applied in projects like defense, aerospace, R&D, IT development.
• CPM: Applied in construction, engineering, plant maintenance, and other predictable
projects.
7. Cost Considerations
• PERT: Does not emphasize cost control; its main concern is time.
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• CPM: Strongly emphasizes cost-time optimization, including “crashing” (reducing
time at additional cost).
8. Charts and Diagrams
Both use network diagrams, but:
• PERT: Diagrams are event-oriented (focus on milestones).
• CPM: Diagrams are activity-oriented (focus on tasks).
9. Flexibility
• PERT: More flexible in uncertain environments.
• CPM: More rigid but effective in predictable environments.
Comparative Table of PERT and CPM
Aspect
PERT
CPM
Origin
U.S. Navy (Polaris project)
DuPont (construction projects)
Focus
Time management
Cost and time optimization
Approach
Probabilistic
Deterministic
Activity Time
Three estimates (O, M, P)
Single estimate
Application
R&D, defense, IT projects
Construction, engineering, maintenance
Diagram Type
Event-oriented
Activity-oriented
Cost Consideration
Not emphasized
Strongly emphasized
Flexibility
High (uncertain projects)
Lower (predictable projects)
Conclusion
• Make-or-Buy Decision: Influenced by cost, resources, quality, supplier reliability,
confidentiality, and strategic goals. It is a balance between efficiency and long-term
competitiveness.
• PERT vs CPM: Both are project management tools but differ in focus. PERT deals
with uncertainty and time estimation, while CPM emphasizes cost-time trade-offs in
predictable projects.
Together, these topics highlight how managers must balance operational efficiency with
strategic foresight. The make-or-buy decision ensures effective resource allocation, while
PERT and CPM provide frameworks for managing complex projects.
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3. Outline various factors which can aect producvity in your business.
Ans: Factors Affecting Productivity in a Business (Simple & Engaging Explanation)
Imagine you are running a small business—maybe a shop, a startup, or even managing a
team in a company. Some days, everything runs smoothly: work gets done quickly,
employees are motivated, and profits increase. But on other days, things slow down—
delays happen, mistakes increase, and output drops.
This difference is what we call productivity—how efficiently a business converts inputs (like
time, money, and effort) into outputs (goods or services). Many factors influence
productivity, and understanding them helps a business grow and succeed.
1. Human Factors (Employees and Workforce)
At the heart of every business are people. If employees are skilled, motivated, and happy,
productivity naturally increases.
(a) Skills and Training
Employees who know their work well perform faster and better. For example, a trained
worker in a factory can produce more items with fewer errors compared to an untrained
worker.
(b) Motivation and Morale
When employees feel valued, they give their best effort. Good salaries, recognition,
promotions, and a positive work environment boost morale. On the other hand, stress or
dissatisfaction reduces productivity.
(c) Health and Well-being
A healthy worker is a productive worker. If employees are tired, sick, or mentally stressed,
their efficiency decreases. That’s why companies focus on work-life balance and wellness
programs.
2. Technology and Machinery
Technology plays a huge role in modern businesses.
(a) Use of Modern Technology
Businesses using advanced machines and software can produce more in less time. For
example, automated machines in factories increase speed and reduce manual errors.
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(b) Maintenance of Equipment
Even the best machines fail if not maintained properly. Frequent breakdowns slow down
production and increase costs.
(c) Digital Tools
In offices, tools like project management software, communication apps, and automation
systems improve coordination and save time.
3. Management and Leadership
Good management is like the backbone of productivity.
(a) Planning and Organization
If work is planned properly, employees know what to do and when to do it. Poor planning
leads to confusion, delays, and wasted effort.
(b) Leadership Style
A supportive and inspiring leader can motivate the team. On the other hand, strict or
unclear leadership can create fear and reduce efficiency.
(c) Decision-Making
Quick and correct decisions keep the business moving forward. Delayed or wrong decisions
can cause losses and reduce productivity.
4. Work Environment
The environment in which employees work also matters a lot.
(a) Physical Environment
Proper lighting, ventilation, comfortable furniture, and safety measures make employees
work better. Imagine working in a hot, noisy, or unsafe place—it naturally reduces
efficiency.
(b) Organizational Culture
A positive culture where teamwork, respect, and communication are encouraged leads to
higher productivity.
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5. Financial Resources
Money is another important factor.
(a) Availability of Capital
Businesses need money to buy raw materials, pay salaries, and invest in technology. Lack of
funds can slow down operations.
(b) Cost Management
Efficient use of money improves productivity. Wastage of resources or high costs reduce
overall efficiency.
6. Raw Materials and Supply Chain
For businesses that produce goods, raw materials are essential.
(a) Quality of Raw Materials
Good quality materials lead to better products and fewer defects.
(b) Availability and Timely Supply
If raw materials are not available on time, production stops. This is why supply chain
management is very important.
7. Time Management
Time is one of the most valuable resources.
(a) Efficient Scheduling
When tasks are properly scheduled, work is completed faster without confusion.
(b) Avoiding Delays
Delays in one task can affect the entire process. For example, if one department is late, the
next one cannot start its work.
8. External Factors
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Some factors are outside the control of the business but still affect productivity.
(a) Government Policies
Taxes, labor laws, and regulations can impact how a business operates.
(b) Economic Conditions
Inflation, recession, or changes in demand affect productivity. For example, during a
slowdown, businesses may reduce production.
(c) Competition
Healthy competition pushes businesses to improve efficiency and productivity.
9. Innovation and Creativity
Businesses that keep improving and innovating stay productive.
(a) New Ideas
Innovative ideas can reduce costs, improve quality, and save time.
(b) Continuous Improvement
Regularly reviewing processes and finding better ways to do things increases productivity
over time.
10. Communication
Good communication connects everything in a business.
(a) Clear Instructions
When employees clearly understand their tasks, they work more efficiently.
(b) Coordination Between Departments
Smooth communication between teams avoids misunderstandings and delays.
Conclusion
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Productivity in a business is not influenced by just one factor—it is the result of many
elements working together. Think of it like a machine with many parts. If one part fails, the
whole system slows down.
To achieve high productivity, a business must:
• Invest in skilled and motivated employees
• Use modern technology
• Ensure good management and planning
• Maintain a positive work environment
• Manage finances and resources efficiently
In simple words, productivity improves when people, processes, and resources are properly
managed.
4. What is work measurement ? What are its objecves? Briey explain various techniques
of work measurement.
Ans: Work Measurement: Meaning, Objectives, and Techniques
Work measurement is a fundamental concept in industrial engineering and management. It
deals with analyzing how much time a task should take when performed under standard
conditions. By establishing these standards, organizations can plan, control, and improve
productivity. Let’s explore this in detail, step by step, so it feels clear and approachable.
1. What is Work Measurement?
Work measurement is the process of determining the time required by a qualified worker,
working at a normal pace, to complete a specific job using a given method.
In simple terms, it answers the question: “How long should this job take?”
It is not about rushing workers but about setting fair and realistic standards. These
standards help in planning production schedules, estimating costs, and evaluating
performance.
2. Objectives of Work Measurement
The objectives can be grouped into several categories:
1. Establishing Time Standards
o To determine the standard time required for each job.
o These standards become benchmarks for evaluating efficiency.
2. Improving Productivity
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o By identifying inefficient methods and suggesting improvements.
o Helps in balancing workloads and eliminating bottlenecks.
3. Planning and Scheduling
o Accurate time standards allow managers to plan production schedules
realistically.
o Ensures timely delivery of products.
4. Cost Estimation and Control
o Time standards help in calculating labor costs.
o Useful for preparing budgets and controlling expenses.
5. Fair Wage Systems
o Provides a basis for incentive schemes and fair wages.
o Ensures workers are rewarded for efficiency without exploitation.
6. Resource Allocation
o Helps in deciding manpower requirements.
o Ensures optimal use of machines and materials.
7. Performance Evaluation
o Managers can compare actual performance with standard performance.
o Identifies training needs and areas for improvement.
3. Techniques of Work Measurement
Several techniques are used to measure work. Each has its own application depending on
the type of job and level of detail required.
(a) Time Study
• Definition: A technique where the job is observed, and the time taken by a worker is
recorded using a stopwatch.
• Process:
1. Select the job to be studied.
2. Break it into elements.
3. Record the time for each element.
4. Apply rating factors to adjust for worker’s speed.
5. Add allowances (for fatigue, delays).
6. Calculate standard time.
• Use: Best for repetitive jobs with short cycles, like assembly line tasks.
(b) Work Sampling
• Definition: A statistical technique where observations are made at random intervals
to determine how time is spent.
• Process:
1. Observe workers at random times.
2. Record whether they are working or idle.
3. Calculate the proportion of time spent on each activity.
• Use: Suitable for long-cycle or non-repetitive jobs, like maintenance work.
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(c) Predetermined Motion Time Systems (PMTS)
• Definition: Uses standard data for basic human motions (like reach, grasp, move) to
calculate job time.
• Examples: Methods-Time Measurement (MTM), Work-Factor System.
• Use: Applied in jobs where detailed analysis of motions is needed.
(d) Analytical Estimating
• Definition: Involves estimating the time required for a job based on experience and
data from similar tasks.
• Use: Useful when jobs are non-repetitive or complex, and direct observation is
difficult.
(e) Synthesis from Standard Data
• Definition: Combines data from previous time studies to create a database of
standard times.
• Use: When similar jobs are performed repeatedly, managers can use existing data
instead of conducting new studies.
(f) Activity Sampling
• Definition: Similar to work sampling but focuses on groups of workers or machines.
• Use: Helps in analyzing utilization of resources across departments.
4. Advantages of Work Measurement
• Provides accurate labor cost estimates.
• Improves efficiency by identifying waste.
• Ensures fair wages and incentive schemes.
• Helps in production planning and control.
• Encourages workers by setting realistic targets.
5. Limitations of Work Measurement
• Time-consuming and requires trained analysts.
• Workers may feel pressured or monitored.
• Accuracy depends on proper observation and rating.
• Not suitable for highly creative or unpredictable tasks.
6. Practical Example
Imagine a factory producing bolts. Management wants to know how many bolts a worker
should produce in an hour.
• A time study is conducted:
o Average observed time per bolt = 1 minute.
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o Worker rating = 110% (slightly faster than normal).
o Normal time = 1 × (100/110) = 0.91 minutes.
o Allowance = 10% for fatigue and delays.
o Standard time = 0.91 × (1 + 0.10) = 1 minute approx.
Thus, the standard output is 60 bolts per hour. This figure helps in planning production,
setting wages, and evaluating performance.
Conclusion
Work measurement is about determining fair and realistic time standards for tasks. Its
objectives include improving productivity, planning schedules, estimating costs, and
ensuring fair wages. Techniques like time study, work sampling, PMTS, and analytical
estimating provide different ways to measure work depending on the nature of the job.
5. A company uses annually 42000 units of an item. Cost per unit is Rs.2 Each order costs
Rs. 42 and inventory carrying cost is 15% p.a. of inventory value.
(a) Find E.O.Q.
(b) If the procurement me is 10 days and safety stock is 400 units, nd recorder level,
maximum, minimum and average inventory.
Ans: Understanding the Situation
Imagine a company that regularly uses an item (maybe raw material). Every year, it needs
42,000 units of that item.
Now, the company faces two types of costs:
1. Ordering Cost → Every time it places an order, it costs ₹42
2. Carrying Cost → Keeping inventory in storage costs 15% of the item value per year
The cost of each unit = ₹2
The company wants to manage its inventory efficiently—meaning:
• Don’t order too frequently (high ordering cost )
• Don’t store too much (high carrying cost )
So, we use a famous concept:
(a) Economic Order Quantity (EOQ)
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EOQ tells us the best quantity to order each time so that total cost is minimum.
Formula:
We use the EOQ formula:
Where:
• D = Annual demand = 42,000 units
• S = Ordering cost = ₹42
• H = Carrying cost per unit per year
Step 1: Calculate Carrying Cost (H)
Carrying cost = 15% of unit cost
= 15% of ₹2
= 0.15 × 2 = ₹0.30 per unit per year
Step 2: Put values in EOQ formula
EOQ = √[(2 × 42000 × 42) / 0.30]
Let’s solve step-by-step:
• 2 × 42000 × 42 = 35,28,000
• Divide by 0.30 → 35,28,000 ÷ 0.30 = 1,17,60,000
• Square root → √1,17,60,000 ≈ 3429 units (approx.)
Final Answer (a):
EOQ ≈ 3429 units
This means the company should order about 3429 units each time for maximum efficiency.
(b) Inventory Levels
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Now let’s calculate different stock levels using simple logic.
Step 1: Daily Consumption
Annual demand = 42,000 units
Assume 300 working days
Daily demand = 42000 ÷ 300 = 140 units/day
Step 2: Reorder Level
This is the level at which the company should place a new order.
Formula:
Reorder Level = (Daily demand × Lead time) + Safety stock
= (140 × 10) + 400
= 1400 + 400
= 1800 units
Reorder Level = 1800 units
When stock reaches 1800 units, place a new order.
Step 3: Minimum Level
Formula:
Minimum Level = Reorder Level – (Normal consumption × Lead time)
= 1800 – (140 × 10)
= 1800 – 1400
= 400 units
Minimum Level = 400 units
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This is the lowest stock level (same as safety stock).
Step 4: Maximum Level
Formula:
Maximum Level = Reorder Level + EOQ – (Minimum consumption × Lead time)
= 1800 + 3429 – 1400
= 3829 units
Maximum Level ≈ 3829 units
Step 5: Average Inventory
Formula:
Average Inventory = (EOQ / 2) + Safety stock
= (3429 / 2) + 400
= 1714.5 + 400
= 2114.5 units
Average Inventory ≈ 2115 units
Final Answers Summary
Concept
Value
EOQ
3429 units
Reorder Level
1800 units
Minimum Level
400 units
Maximum Level
3829 units
Average Inventory
2115 units
Easy Conceptual Understanding
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Think of it like running a kitchen :
• If you buy too many vegetables → they spoil (carrying cost)
• If you buy too little → you keep going to market again and again (ordering cost)
EOQ helps you find the perfect balance
• Reorder level → When to go to market
• Minimum level → Don’t go below this
• Maximum level → Don’t overstock
• Average inventory → Typical stock you maintain
Conclusion
Inventory management is all about smart planning. By using EOQ and stock level formulas, a
company can:
• Reduce unnecessary costs
• Avoid stock shortages
• Ensure smooth operations
This problem may look mathematical, but in reality, it’s about making smart daily decisions
in business.
6. Write short notes on the following :-
(a) ABC classicaon of inventory.
(b) Carrying and ordering costs of inventory with examples.
Ans: (a) ABC Classification of Inventory
Meaning
ABC classification is a method of categorizing inventory items based on their importance,
usually measured in terms of annual consumption value. It is derived from the Pareto
principle (80/20 rule), which suggests that a small percentage of items account for a large
percentage of the total value.
Categories
1. A Items (High Value, Low Quantity):
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o These are the most valuable items, though they may be few in number.
o They account for about 70–80% of the total inventory value but only 10–20%
of the items.
o Example: Expensive raw materials like specialized metals or critical
components in manufacturing.
o Control: Requires strict monitoring, accurate records, and frequent review.
2. B Items (Moderate Value, Moderate Quantity):
o These items are of moderate importance.
o They account for about 15–25% of the total value and 30% of the items.
o Example: Standard components like bolts, wires, or packaging materials.
o Control: Moderate control with periodic review.
3. C Items (Low Value, High Quantity):
o These are the least valuable items but largest in number.
o They account for about 5% of the total value but 50% of the items.
o Example: Stationery, nuts, screws, or cleaning supplies.
o Control: Simple controls, bulk ordering, and less frequent monitoring.
Advantages of ABC Classification
• Focuses managerial attention on critical items (A).
• Helps in efficient allocation of resources.
• Reduces risk of stockouts for high-value items.
• Simplifies control of low-value items.
Limitations
• Based only on monetary value, not on criticality or usage.
• Requires continuous updating of data.
• May overlook items that are low in value but vital for operations.
(b) Carrying and Ordering Costs of Inventory
Inventory management involves balancing two major types of costs: carrying costs and
ordering costs.
1. Carrying Costs (Holding Costs)
Carrying costs are the expenses incurred in holding or storing inventory over a period of
time.
Components of Carrying Costs
• Storage Costs: Rent, utilities, and maintenance of warehouses.
• Capital Costs: Interest on money invested in inventory.
• Insurance Costs: Premiums paid to insure inventory against risks.
• Obsolescence Costs: Loss due to items becoming outdated or obsolete.
• Depreciation Costs: Reduction in value of items over time.
• Handling Costs: Labor and equipment used for moving and managing inventory.
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Example
Suppose a company holds inventory worth ₹10,00,000.
• Storage cost = ₹50,000
• Insurance = ₹20,000
• Capital cost (10% interest) = ₹1,00,000
• Obsolescence = ₹30,000 Total carrying cost = ₹2,00,000 per year.
This shows how expensive it can be to hold large inventories.
2. Ordering Costs
Ordering costs are the expenses incurred in placing and receiving orders for inventory.
Components of Ordering Costs
• Administrative Costs: Salaries of staff involved in purchasing.
• Communication Costs: Phone calls, emails, and paperwork.
• Transportation Costs: Freight and delivery charges.
• Inspection Costs: Checking quality and quantity of received goods.
• Setup Costs: Preparing machines or processes for production runs.
Example
Suppose each order costs ₹2,000 in administrative and transport expenses. If the company
places 100 orders in a year, total ordering cost = ₹2,00,000.
3. Balancing Carrying and Ordering Costs
The key challenge in inventory management is balancing these two costs:
• Large orders reduce ordering costs but increase carrying costs.
• Small orders reduce carrying costs but increase ordering costs.
This balance is achieved through the Economic Order Quantity (EOQ) model, which
calculates the optimal order size that minimizes the total cost.
Where:
• = Annual demand
• = Ordering cost per order
• = Carrying cost per unit per year
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4. Practical Illustration
Suppose:
• Annual demand = 10,000 units
• Ordering cost per order = ₹500
• Carrying cost per unit per year = ₹20
So, the company should order 707 units each time to minimize total inventory costs.
Conclusion
• ABC Classification: Helps prioritize inventory control by dividing items into A (high
value), B (moderate value), and C (low value). It ensures managerial focus on critical
items while simplifying control of less important ones.
• Carrying and Ordering Costs: Represent the two major expenses in inventory
management. Carrying costs increase with larger inventories, while ordering costs
increase with frequent small orders. Balancing these costs through models like EOQ
ensures efficiency and cost minimization.
7. What are the various components of supply chain management?
Ans: Total Quality Management (TQM): Principles for Delivering Higher Customer Value
The statement “TQM is a combination of various principles which are aimed to establish and
deliver higher customer value” captures the essence of what Total Quality Management is
all about. TQM is not a single tool or technique—it is a philosophy, a way of managing an
organization that integrates multiple principles to ensure that customers consistently
receive products and services of the highest quality. Let’s unpack this idea step by step.
1. What is TQM?
Total Quality Management (TQM) is a holistic approach to long-term success through
customer satisfaction. It involves all members of an organization, from top management to
frontline employees, and integrates quality into every process. The goal is not just to meet
customer expectations but to exceed them, thereby creating higher customer value.
2. Principles of TQM
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TQM is built on several interrelated principles. Together, they form a framework that
ensures quality is embedded in every aspect of the organization.
(a) Customer Focus
• Customers are at the heart of TQM.
• Every process, product, and service is designed to meet or exceed customer
expectations.
• Feedback from customers is continuously gathered and used to improve.
(b) Continuous Improvement (Kaizen)
• Quality is not a one-time achievement but an ongoing process.
• Organizations must constantly look for ways to improve processes, reduce waste,
and enhance efficiency.
• Small, incremental improvements add up to significant gains over time.
(c) Employee Involvement
• Every employee is responsible for quality.
• TQM empowers employees to identify problems, suggest solutions, and take
ownership of outcomes.
• Training and motivation are essential to ensure employees contribute effectively.
(d) Process-Centered Approach
• Quality is achieved by focusing on processes rather than just outcomes.
• By standardizing and improving processes, organizations can consistently deliver
high-quality results.
• Tools like flowcharts and process mapping are used to analyze and refine workflows.
(e) Integrated System
• TQM requires coordination across departments.
• Quality is not confined to production—it extends to marketing, finance, HR, and
customer service.
• An integrated system ensures that all parts of the organization work together toward
common goals.
(f) Fact-Based Decision Making
• Decisions must be based on data, not assumptions.
• Statistical tools, performance metrics, and quality audits are used to guide
improvements.
• This reduces errors and ensures objectivity.
(g) Communication
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• Open and transparent communication is vital for TQM.
• Employees must understand goals, processes, and expectations clearly.
• Effective communication fosters collaboration and trust.
3. How These Principles Deliver Higher Customer Value
When these principles are combined, they create a powerful system that enhances
customer value:
• Better Quality Products: Continuous improvement and process focus ensure fewer
defects and higher reliability.
• Greater Satisfaction: Customer feedback is integrated into decision-making,
ensuring products meet real needs.
• Consistency: Standardized processes guarantee uniform quality across batches and
services.
• Trust and Loyalty: Customers value organizations that consistently deliver
excellence, leading to long-term relationships.
• Competitive Advantage: Superior quality differentiates the organization in the
marketplace.
4. Techniques and Tools Supporting TQM
To implement these principles, organizations use various techniques:
• Quality Circles: Small groups of employees who meet regularly to discuss and solve
quality problems.
• Benchmarking: Comparing processes with industry leaders to identify gaps and
opportunities.
• Statistical Process Control (SPC): Using statistical methods to monitor and control
processes.
• Six Sigma: A data-driven approach to eliminate defects and improve quality.
• ISO Standards: International standards that provide frameworks for quality
management systems.
5. Example of TQM in Action
Consider a car manufacturing company:
• Customer Focus: Surveys reveal customers want better fuel efficiency.
• Continuous Improvement: Engineers redesign engines to reduce fuel consumption.
• Employee Involvement: Assembly line workers suggest ways to reduce waste in
production.
• Process-Centered Approach: Quality checks are introduced at each stage of
assembly.
• Fact-Based Decisions: Data from test drives is analyzed to refine performance.
• Communication: Regular meetings ensure all departments are aligned.
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The result is a car that not only meets but exceeds customer expectations, delivering higher
value.
6. Challenges in Implementing TQM
• Resistance to change from employees or management.
• High initial investment in training and systems.
• Need for continuous commitment from leadership.
• Difficulty in measuring intangible aspects like customer satisfaction.
Despite these challenges, organizations that successfully implement TQM reap significant
benefits in terms of quality, efficiency, and customer loyalty.
7. Conclusion
TQM is indeed a combination of principles—customer focus, continuous improvement,
employee involvement, process orientation, integrated systems, fact-based decisions, and
effective communication. Together, these principles ensure that organizations deliver higher
customer value consistently.
The statement is accurate because TQM is not about isolated actions; it is about a
comprehensive philosophy that integrates people, processes, and systems to achieve
excellence. By embedding quality into every aspect of operations, TQM transforms
organizations into customer-centric entities that thrive in competitive environments.
8. TQM is combinaon of various principles which are aimed to establish and deliver
higher customer value. Explain the statement while outlining
Ans: Components of Supply Chain Management (SCM)
Supply Chain Management (SCM) may sound like a complicated concept, but in reality, it is
something we see in our daily lives. Whenever you buy a product—like a packet of biscuits,
a mobile phone, or even clothes—it has passed through a chain of processes before
reaching you. This entire journey, from raw materials to the final customer, is called the
supply chain.
To manage this journey efficiently, businesses rely on different components of Supply Chain
Management. Let’s understand these components in a simple, relatable way.
1. Planning – The Starting Point
Everything begins with a plan. Just like you plan your studies or a trip, companies plan how
much to produce, when to produce, and how to deliver products.
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Planning involves:
• Forecasting customer demand
• Deciding production quantity
• Managing resources efficiently
For example, before a festival season like Diwali, companies plan to produce more sweets,
clothes, and gifts because they expect higher demand.
Without proper planning, companies may produce too much (leading to waste) or too
little (leading to shortages).
2. Sourcing – Getting the Raw Materials
Once planning is done, the next step is sourcing. This means selecting suppliers and
obtaining the raw materials needed to create the product.
Key activities include:
• Choosing reliable suppliers
• Negotiating prices
• Ensuring quality of materials
For example, a biscuit company needs flour, sugar, and oil. It must find suppliers who can
provide these materials at the right price and quality.
Good sourcing ensures smooth production and reduces costs.
3. Manufacturing – Turning Raw Materials into Products
This is where the actual production happens. Raw materials are converted into finished
goods.
Manufacturing includes:
• Production processes
• Quality control
• Packaging
For example, in a mobile phone factory, different parts are assembled to create the final
product.
Efficient manufacturing helps companies produce high-quality goods at lower costs.
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4. Inventory Management – Storing Goods Smartly
Inventory refers to the stock of raw materials, work-in-progress goods, and finished
products.
Companies must manage inventory carefully because:
• Too much inventory increases storage costs
• Too little inventory can lead to shortages
For example, a grocery store must stock enough items to meet demand but avoid
overstocking items that may expire.
Proper inventory management ensures balance between supply and demand.
5. Transportation – Moving Products
Transportation is the process of moving goods from one place to another.
It includes:
• Delivery from suppliers to factories
• Movement between warehouses
• Final delivery to customers
Modes of transport:
• Road (trucks)
• Rail
• Air
• Sea
For example, vegetables are transported daily from farms to city markets.
Fast and reliable transportation ensures timely delivery and customer satisfaction.
6. Warehousing – Safe Storage
Warehousing involves storing goods until they are needed.
Functions of warehouses:
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• Protect goods from damage
• Organize products for easy access
• Maintain stock levels
For example, e-commerce companies like Amazon use large warehouses to store thousands
of products before shipping them.
Warehousing helps maintain a steady supply of products.
7. Distribution – Reaching the Customer
Distribution is the process of delivering finished products to the end customer or retailers.
It includes:
• Order processing
• Packaging
• Delivery
For example, when you order something online, the company processes your order and
ships it to your home.
Efficient distribution ensures that customers receive products quickly and in good
condition.
8. Information Flow – The Backbone of SCM
Information flow connects all components of the supply chain.
It includes:
• Demand data
• Inventory levels
• Delivery status
Modern companies use technology like:
• ERP systems
• Tracking software
• Data analytics
For example, when you track your online order, you are seeing the information flow in
action.
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Without proper information, the supply chain cannot function smoothly.
9. Customer Service – The Final Touch
Customer service ensures that customers are satisfied with the product and delivery.
It involves:
• Handling complaints
• Managing returns
• Providing support
For example, if a product is damaged during delivery, customer service helps resolve the
issue.
Good customer service builds trust and loyalty.
10. Coordination and Integration – Bringing Everything Together
All these components must work together in coordination.
For example:
• Planning must align with sourcing
• Manufacturing must match demand
• Transportation must support distribution
If one part fails, the entire supply chain is affected.
Integration ensures efficiency and smooth operations.
Conclusion
Supply Chain Management is like a well-organized team where each member has a specific
role. From planning and sourcing to manufacturing, transportation, and customer service—
every component plays an important part in delivering products to customers.
“This paper has been carefully prepared for educaonal purposes. If you noce any
mistakes or have suggesons, feel free to share your feedback.”
