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    Cost of Each Spare (C.P.) $ 173 Salvage Value of Each Spare (S.V.) $ 43

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    Chinish Kalra
    This document presents two methods, ratio and tabular, for determining the optimal number of spare parts to stock. The ratio method calculates a service level of 90% which corresponds to an optimal number of 3 spares. The tabular method lists the expected costs for stocking levels of 0-3 spares and finds the total expected cost is least for 3 spares, also the optimal number. Both methods conclude the optimal number of spare parts to stock is 3.

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    Cost of Each Spare (C.P.) $ 173 Salvage Value of Each Spare (S.V.) $ 43

    Uploaded by

    Chinish Kalra
    16 views2 pages
    This document presents two methods, ratio and tabular, for determining the optimal number of spare parts to stock. The ratio method calculates a service level of 90% which corresponds to an optimal number of 3 spares. The tabular method lists the expected costs for stocking levels of 0-3 spares and finds the total expected cost is least for 3 spares, also the optimal number. Both methods conclude the optimal number of spare parts to stock is 3.

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    This document presents two methods, ratio and tabular, for determining the optimal number of spare parts to stock. The ratio method calculates a service level of 90% which corresponds to an optimal number of 3 spares. The tabular method lists the expected costs for stocking levels of 0-3 spares and finds the total expected cost is least for 3 spares, also the optimal number. Both methods conclude the optimal number of spare parts to stock is 3.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    16 views2 pages

    Cost of Each Spare (C.P.) $ 173 Salvage Value of Each Spare (S.V.) $ 43

    Uploaded by

    Chinish Kalra
    This document presents two methods, ratio and tabular, for determining the optimal number of spare parts to stock. The ratio method calculates a service level of 90% which corresponds to an optimal number of 3 spares. The tabular method lists the expected costs for stocking levels of 0-3 spares and finds the total expected cost is least for 3 spares, also the optimal number. Both methods conclude the optimal number of spare parts to stock is 3.

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    1.

    RATIO METHOD

    NUMBER OF SPARES PROBABILITY CUMULATIVE PROBABILITY


    0 0.05 0.05

    1 0.60 0.65

    2 0.20 0.85

    3 0.15 1

    COST OF EACH SPARE (C.P.) = $ 173


    SALVAGE VALUE OF EACH SPARE (S.V.) = $ 43

    OVERSTOCKING COST (Co) = C.P. - S.V.


    OVERSTOCKING COST (Co) = ($ 173 - $ 43) = $ 130

    UNDERSTOCKING COST (Cu) = 2 * 580 = $ 1160

    SERVICE LEVEL = Cu/(Cu+Co)


    SERVICE LEVEL = 1160/(1160+130)
    SERVICE LEVEL = 0.90 (rounded off to 2 decimal places)\

    Since the service level lies between cumulative probability of 0.85 and 1, therefore ​OPTIMAL NUMBER OF
    SPARES = 3

    2. ​TABULAR METHOD

    STOCKING DEMAND = 0 DEMAND = 1 DEMAND = 2 DEMAND = 3 EXPECTED


    LEVEL COST

    Prob. = 0.05 Prob. = 0.60 Prob. = 0.20 Prob. = 0.15

    0 S=D 0.60*(1-0)*1160 0.20*(2-0)*1160 0.15*(3-0)*1160 $ 1,682


    = $ 696 = $ 464 = $ 522

    1 0.05*(1-0)*130 S=D 0.20*(2-1)*1160 0.15*(3-1)*1160 $ 586.5


    = $ 6.5 = $ 232 = $ 348

    2 0.05*(2-0)*130 0.60*(2-1)*130 S=D 0.15*(3-2)*1160 $ 265


    = $ 13 = $ 78 = $ 174

    3 0.15*(3-0)*130 0.60*(3-1)*130 0.20*(3-2)*130 S=D $ 240.5


    = $ 58.5 = $ 156 = $ 26

    Since Total expected cost is least for 3 spares, therefore ​OPTIMAL NUMBER OF SPARES = 3

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