MGT613 Production operations Management Assignment No. 02 fall 28 December2011

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Due Date: 28.12.2011 Marks: 30
SEMESTER FALL 2011 Production operations
Management (MGT 613) Assignment No. 02
Mr. Akbar Ali is working as a manager in a super store. In normal conditions he has to order eggs at least
three days in advance from his supplier in Lahore. As winter season has approached and the sales are expected
to increase rapidly, so he has to manage the inventory of the store very effectively. This year due to some
unknown reasons the sales of the eggs are fluctuating so much that he has no way to estimate the probability of
low (125 dozen), medium (800 dozen), or high (1750 dozen) demand for eggs in the peak season. He buys
eggs for Rs-100 per dozen and sells for Rs-250 per dozen.
Assignment:
Mr. Akbar Ali is very confused from this situation, as he has to meet the demand of customers in the
upcoming months and increase the revenue of the store as well while keeping the inventory at lowest possible
level. The owner of the store asked Mr. Akbar to develop a Pay Off table from given data and determine the
best alternatives from given scenario under the following two conditions:
• Certainty in Demand
• Uncertainty in Demand
Mr. Akbar is worried in this situation, as he does not know how to prepare the payoff table and how he can use
the best alternatives under certainty and uncertainty in demand. Based on his knowledge and the past
experiences Mr. Akbar prepared the payoff table given as:
After in depth analysis of the payoff table the owner of the shop is not satisfied from Mr. Akbar’s efforts. He
immediately ordered him to come up with more precise, reliable and accurate analysis. You being the student
of POMA assist Mr. Akbar under this radical condition. Your calculation and analysis must cover the
following aspects of the given scenario.
1. Correct Payoff Table Marks (10)
2. Decision Making under Certainty Marks (10)
3. Decision Making under Uncertainty Marks (10)
Item # 1:
Pay off is Rs 150/dozen
(Please show calculations and your understanding of constructing this table).
Orders
Alternative Low (125 dozen) Medium (800 dozen) High (1750 dozen)
Order 125 dozen Rs-15,625 Rs-15,625 Rs-15,625
Order 800 dozen 100,000 640,000 1,420,000
Order 1750 dozen 218,750 1400,000 3,062,500

Possible Future Demands
Alternative Low Moderate High
Season 18,750/- 120,000/- 262,500/-
Item 2:
(Explain the decision under certainty in your own words)
High demand should be considered under conditions of certainty. This will give Rs 262,500 as pay off.
Item # 3: Decision under uncertainty
(Please explain the reasons for not considering other options here and then give your answer under
uncertainty as maximin)