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Course Number: MEM 720/ PME 316, Course Title : Materials Management

Unit 1

Introduction and relevance of materials management, purchasing function, organization of purchase


department, deterministic models, EOQ, EPQ model discount and price break, back order, multi-item
models.

Unit 2

Basic system of inventory management, inventory costing, stock control system, ordering procedure,
cyclic reordering, reorder quantity, single period model, role of uncertainty, selective inventory models.

Unit 3

Sales forecasting, inventory control.

Unit 4

MRP Concepts, logic , Implementation issues, JIT philosophy, case Studies.

Unit 5

Store keeping, function of store organization, location of store organization, centralized and decentralized
storing, vendor selection and evaluation, vendor relations, consolidation of vendors base, e- procurement
and internet based purchasing, organizational issues and evaluation of materials function.

Suggested Reading
Introduction to materials management – Chapman (New age international)

Purchasing and materials management - A K Dutta

Purchasing and materials management - Gopalakrishnan

Production and operations management - Stevensons ( Mc-Graw hill)

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Materials Management MEM 720 / PME 316
QUESTION BANK
SESSION 2016-2017

UNIT 1

1. What are the primary and secondary objectives of the Material Management?

2. How does the good record keeping help an organization?

3. What are the objectives of purchasing? Enlist Five ‘R’s of purchasing.

4. What are the duties and responsibilities of purchasing department?

5. Explain in detail the special methods of purchasing.

6. How does centralized purchasing differ from decentralized purchasing?

7. Discuss the various principles of purchasing.

8. Explain the management of purchasing department through an organizational chart. Define the roles of
various personnel of purchase department in detail.

9. Explain various methods of Tenders.

10. Classify the Inventory Models into various categories.

11. Derive expression for finding Economic Order Quantity and hence comment on the necessity of
having an EOQ.

12. What is EOQ concept? Derive the formula. State the assumptions made.

13. Explain the need of keeping inventory in a manufacturing organization. Discuss about the constituents
of Inventory and write a special note on Pipeline Inventories.

14. A supplier has to supply 12000 units of a product per year to his customers. The demand is fixed and
the shortage cost is assumed to be infinite and production is instantaneous. The inventory holding cost
is Re. 0.50 per unit per month and the set up cost per run is Rs. 300. Determine the optimal run size,
optimal scheduling period and minimum total expected cost per year.

15. Duke Limited, Ludhiana is tailoring the shirts as per the following details:

Annual Requirement: 24000 shirts, Sewing Rate: 100 pieces per shift, Number of working days in a
year: 320 days, Cost of one shirt: Rs. 100, Inventory carrying cost per year: 10 percent of value, Set up
cost per production run: Rs. 500. Find the optimum run size of sewing the shirts.

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16. Harchand Industries, Jalandhar is having the following production data for financial year 2011-12:

Annual Demand: 6000 units, Cost of an item: Rs. 20, Ordering Cost: Rs. 400, Inventory carrying cost:
30 percent of item cost, Shortage cost: Rs. 10 per item

Calculate the optimum order quantity, maximum inventory, maximum number of shortage, time
between two orders and Total annual cost for the above given data of Harchand Industries, Jalandhar.

17. Pati Patakshu Limited, Gwalior requires 2000 pieces of a certain item every year. The inventory
holding cost is 20 percent of the cost of an item which is Rs. 100. Salaries and overheads of the
purchasing department who place the orders are Rs. 6000 per year. The total number of orders flowing
out of the purchasing department for various types of items is 1500. Transportation cost per trip is Rs.
20. Determine the economic purchasing batch quantity for the item and the time between the orders.

18. Hardeep Enterprises, Ontario produces three different items. The items are produced in a lot. The
demand rate for each item is constant and can be assumed to be deterministic. No back orders are to be
allowed. The production data is as given below:

Items 1 2 3
Holding Cost 20 20 20
Set-up Cost 50 40 60
Cost per unit 6 7 5
Yearly Demand Rate 10000 12000 7500
Determine approximately the economic order quantity when the total value of average inventory levels
of three items is Rs. 1000.

19. Find the optimum quantity for a product for which the price breaks are as follows:

Quantity Unit Cost (In Rs.)


0 ≤ q1 < 500 10.00
500 ≤ q2 < ∞ 9.25

The monthly demand for the product is 200 units, the monthly cost of holding is 2 percent of the item
cost.

(a) When the cost of ordering is Rs. 350.

(b) When the cost of ordering is Rs. 100.

UNIT 2

1. Classify inventory management models on the basis of deterministic and probabilistic demand and
(I ) Constant reorder level and constant batch quantity (ii) Fixed reorder interval and variable lot size.

2. Discuss the P-system and Q-system of Inventory Management.


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3. How are P-system and Q-system used in practice? Explain.

4. With the help of a graph explain buffer stock, maximum stock, lead time and reorder point and
discuss them in detail.

5. Write a short note on safety stock. List the factors governing the safety stock.

6. Explain the maximum stock and minimum stock limits. What affects are taken into account in fixing
these limits in inventory control?

7. The monthly consumption of an item costing Rs. 12 is estimated at 400 pieces. The carrying cost is
1.5 percent per month and the procurement cost per order is Rs. 36. Lead time is 1 month, review
period is 1 month and Safety stock is equal to half month’s consumption.

(a) What would be the reorder quantity if the stock on hand at first review is 600?

(b) What would be the reorder at second review quantity, if the stock on hand is 200 at second
review and the quantity ordered at first review is yet to be received?

8. The annual consumption of an Alum is 60 kg. and the price is Rs. 8 per kg. The inventory carrying
cost is 15 percent and the ordering cost is Rs. 12 per order. Lead time is 2 months. Safety stock is
kept equal to two months consumption. Calculate parameters to operate a two bin system. Calculate
maximum stock and average inventory.

9. Kamickker Singh is managing a warehouse that distributes a certain type of breakfast food to retailers.
The breakfast food has the following characteristics:

Average demand = 200 cases per day, Lead time = 4 days for re-supply from the vendor, Standard
deviation of daily demand = 150 cases, Desired service level = 95 percent, Ordering cost per order =
Rs. 20 per order, inventory carrying cost = 20 percent per year of the item cost, Item cost = Rs. 10 per
case

Assume that a continuous review system will be used and that the warehouse is open five days a
week, 50 weeks a year. Determine EOQ and reorder point.

10. What is meant by selective control of inventory? What are criteria for classifications in selective
control?

11. A product is priced to sell at $100 per unit, and its cost is constant at $70 per unit. Each unsold unit
has a salvage value of $20. Demand is expected to range between 35 and 40 units for the period; 35 defi
nitely can be sold and no units over 40 will be sold. The demand probabilities and the associated
cumulative probability distribution ( P ) for this situation are shown below.

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Number of Units Demanded Probability of This Demand Cumulative Probability

35 0.10 0.10
36 0.15 0.25
37 0.25 0.50
38 0.25 0.75
39 0.15 0.90
40 0.10 1.00

How many units should be ordered?

UNIT 3

1. Explain in detail what is sale forecasting? State the various sales promotion methods.

2. How can economic indicators be use to forecast sales. Evaluate this approach.

3. Enlist the methods of sale forecasting. How do you forecast the sales of a new product? Discuss.

4. What is the importance of sales forecasting? Explain the method of least squares.

5. Write a short note on:

(i) Collective opinion method of sales forecasting

(ii) Moving average method

(iii) Economic indicators

6. The sales of cycles in a shop in four consecutive months are given as 70, 68, 82 and 95. Exponentially
smoothing average method with a smoothing factor of 0.4 is used in forecasting. Determine the expected
number of sales in the next month.

7. Agra Nursing home has one year moving average forecasting method to produce a particular medicine
requirement. The actual demand for the item is shown in the table below:

Month 1 2 3 4 5 6 7 8 9 10 11 12
Demand 90 80 65 70 100 85 60 75 90 85 60 75
Using the 12 month moving average, find the exponential smoothing forecast for the 13th month.

8. A producer believes that the sale of his product for the past ten years is related to an economic index
and the data for that period is as given below:

Year Economic Index Sales (In 10000 Units)

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1 104 2.0
2 100 2.3
3 111 2.1
4 129 2.6
5 126 2.3
6 115 2.4
7 152 2.5
8 161 2.8
9 143 2.6
10 170 3.0
(a) Determine the equation of the least squares lines that describes the relationship between sales and the
economic indicator.

(b) Determine the strength of the relationship between the two variables by computing the value of
coefficient of correlation.

(c) If the value of economic index for the 11th year is 175, find out the sales in 11th year.

9. Find the quarterly sales for the fifth year, by suitable forecasting technique for the data given below.
Also make adjustment for expected seasonal variations.

Year Quarter Sales (1000Units) Year Quarter Sales (1000Units)


1 1 1.0 3 1 2.0
2 3.0 2 4.0
3 4.0 3 6.0
4 2.0 4 3.0
2 1 1.0 4 1 2.0
2 3.0 2 5.0
3 5.0 3 7.0
4 3.0 4 4.0

From this data, determine the equation of the trend line. With the equation calculate the trend values of
quarterly sales for the coming year i.e. fifth year and adjust these values to provide for expected
seasonal variations.

10. What is ABC method of classification of inventory? What is the graphical approach of
classification of materials into ABC categories?

11. A firm stores 10 items whose annual consumption in units and price per unit is given in table below.
Classify the items into A, B and C categories.

Item Code Annual Usage (Units) Cost per piece (in Rs.)
G1 40000 0.07
G2 195000 0.11

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G3 4000 0.10
M1 100000 0.05
M2 2000 0.14
M3 240000 0.07
M4 16000 0.08
P1 80000 0.06
P2 10000 0.07
P3 5000 0.09

12. In the past, Taylor Industries has used a fixed–time period inventory system that involved taking a
complete inventory count of all items each month. However, increasing labor costs are forcing Taylor
Industries to examine alternative ways to reduce the amount of labor involved in inventory stockrooms,
yet without increasing other costs, such as shortage costs. Here is a random sample of 20 of Taylor’s
items.
Item Number Annual Usage Item Number Annual Usage

1 $ 1,500 11 $13,000
2 12,000 12 600
3 2,200 13 42,000
4 50,000 14 9,900
5 9,600 15 1,200
6 750 16 10,200
7 2,000 17 4,000
8 11,000 18 61,000
9 800 19 3,500
10 15,000 20 2,900
a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an ABC plan.)
b. Item 15 is critical to continued operations. How would you recommend it be classified?

13 What is VED analysis? Give a suitable example.

14.What is meant by GOLF analysis? How decision making is done in case of items belonging to GOLF
categories?

15. Compare and contrast between XYZ analysis and ABC analysis.

16. Compare and contrast between XYZ analysis and FSN analysis.

17 Compare and contrast between SDE analysis and VED analysis.

18. Compare and contrast between SOS analysis and HML analysis.

19. What is meant by MUSIC-3D as applied to inventory control? Explain the cost reduction and
managerial control in MUSIC-3D.

20. Enlist the important documentation points in context of MUSIC-3D.

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UNIT 4

1. Explain the MRP system. Discuss different inputs and outputs of MRP.

2. Distinguish between:
(i) Dependent and Independent demand
(ii) MRP and EOQ model
(iii) MRP and Closed loop MRP

3. What are the logics used in MRP? Explain its methodology.

4. What are the objectives and benefits of using MRP?

5. What is ‘Just In Time’ production’? Discuss its main aims and objectives.

6. Why is multifunction worker required in JIT?

7. What is the role of automation in JIT? Discuss.

8. Explain the concept of JIT. How does it help the manufacturing system to improve the productivity?

9. Explain in detail the basic elements of JIT.

10. Explain the fundamental steps involved in the MRP process.

11. Complete the following material requirement plan. The lead time is one week.

Week number
0 1 2 3 4 5 6 7
Gross Requirement 30 70 50 40
On-Hand (50)
Net Requirements
Planned Order Receipts
Planned Order Release

12. One unit of product, A is made up of two units of B and four units of C. B is made of two units of
D and three units of E. C is made up of three units of D and two units of F.

(a) Draw a product structure tree.


(b) Show a single level bill of materials and an indented bill of materials.
(c) A, B, C, D and E have lead times of one week and B and F have lead times of two weeks.
If 100 units of A are required in week 5, develop the material requirement plan specifying
when items are to be ordered and received. There are no units of inventory on hand.

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UNIT 5

1. What are the objectives of store keeping? List and explain.

2. Describe the functions of a storekeeper.

3. Explain how the store is a central location around which all the activities of a firm revolve?

4. Explain with the help of an organizational chart the various positions in a store.

5. How should a store be located in a manufacturing firm?

6. What are the factors affecting the layout of stores? Explain.

7. How will you classify different types of stores? Explain.

8. Explain the different methods of stock verification.

9. Describe in detail the ‘Store System’.

10. Enumerate the advantages and disadvantages of centralized and decentralized stores in an industry.

11. Who is a storekeeper? What duties and responsibilities are attached to his job?

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12. What are the different methods of Vendor Rating?

13. Discuss the principle involved in the following method of Vendor Evaluation.

(i) Category method (ii) weighted point method (iii) Cost ratio method

14. What are the considerations to be kept in mind for selecting right source of supply? How can you get
information which will assist you in selecting right source?

15. Write a detailed note on buyer-seller relationships.

16. State a few guidelines for keeping the buyer-supplier relationships on even platform.

17. Dhillon Enterprises, Bathinda uses the following table which explains the data on three vendors
of a single item.

Supplier Inspection Analysis Price Analysis Delivery


Analysis
Lots Lots Basic Discount Transport Deliveries
Received Accepted Price Missed
S1 75 66 25.00 5% 1.1 13 %
S2 60 56 28.00 10 % 1.2 9%
S3 28 28 32.00 20 % 1.5 NIL

Dhillon Enterprises places great importance on quality, price and delivery. The three factors of
quality, price and delivery are assigned individual weights of 40%, 35% and 25% respectively for this
item. Calculate composite rating of each vendor.

18. Write short notes on:


(i) E-procurement
(ii) Internet based purchasing

19. Write a short note on the salient features of following organizations in context of purchasing:
(i) Directorate General of Supplies & Disposals (DGS&D)
(ii) Directorate General of Foreign Trade (DGFT)
(iii) World Trade Organization (WTO)

20. Discuss the various functions of management as applied to material function?

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