Operations Management Case Study

Role of Inventory in Reducing the Cost of Production: A Case Study for PSPL

OR

Abstract:
‘Pratap Stable Thermal Energy Private Limited (PSPL)’ popularly known as ‘Pratap Energy’ was established in 2005 with power generation capacity of 12.5MW. The plant was set up near a port village, Nizampatnam in Guntur district. In the initial years of its establishment, the profit of the company was quite encouraging. Suddenly, the Power plant started facing a problem i.e., unable to manage its raw materials especially coal. The senior manager of the company Nanda Kishore (Kishore), conducted a comprehensive study on this problem and recommended ‘Fixed-Order Quantity Model’ for procurement of raw materials whose costs are nearly 20% of the production costs. After adopting the suggested model, the company recorded considerable profits by reducing 2.5% of its production costs.

Pedagogical Objectives:

This case study may be used to understand :
• To know different costs involved in total costs of Inventory
• To understand about Multi-period Inventory System
• To reduce the Inventory costs using Fixed Order Quantity model.

Keywords : Inventory control, Multi-Period Inventory system, Fixed-Order Quantity Model, Total costs, Acquistion costs, Ordering costs, Holding costs

Contents:

• Introduction
• Suggested Questions for Discussion