foroffpeakseason

Yetter stock

eatin
intransit
inventory
protectsagainstpriceincreases

partofproductionprocessnot product

17Howmuch toorder Quantity

2 whento placeorder
independent Demand
 practical model

a order quantity
c Leadtime
Q Re reorder point
i
E I 1
ÉE I
I
I
I
1
I I 1
I
orograf order time
received
dl 40units 5days
200 units

200
fastEDM
total ordering totalHolding
cost
cost
nessorpdeyear
smadantitt

s E't Is EH
pl in Q
1
increases

ordering

cost
placemore
I
I ordersper 1
HQ
fixed decreases
cost
not
I
email purse
 D 10,000 0 500 S 75

I 10441 20
orders year

20 75
Is
1500

QT to 1000 units 10 orders

I Iffy
Suppose
of orders

Is 10orders 75 750

Qt to 100 units
suppose

oforders
If 17h too orders

7500
100orders 75
Is
 H
y
H
Min Inventory
Max Inventory
2 Ott I
H 6 Q 500
H
E 6 1500

Suppose Qt to 1000 units

EH 101 6 3000 Q

Suppose Qt to 100 units

H
f 6 300
O
 p price
optimalorderingquantity

Mththffffft
is whentotalorderingcosts
are EQUALtototalholdingcosts

total ordering totalHolding

cost cost

set total ordering cost equal to

total holding cost II 0 Q

Is EH É
mm solve for Q
E
Q 21
Q 21
Ny
g
 QI Is
D 240 S2 12,480units
H Lo 2 15 3 perunit
s 50
07 1248075
3
644.98 n 645units

TC
414 so
y 13 1934.94

R 240 2 480 units when to order

t
DEA
 Q 200 D 5200 S 50

7.50 10.3 1
82.25

t so 2 si sw 4o52s
 P
P
P

I
I 8
33,430.00 I
II stay
soo 501.20 1000
 P 6.20 H 6.207 0.3 1.86
is this quantity feasible

imo
Qi 522.74 sza units
NI
P 6.90 Hz 6.9070.3 2.07

Q2 501zone sotunits is this quantity feasible

YES

Tc FF so t E 2.07 16.90715200 36,917.50

P 6.20 H 1.86 D 5200 5 50 0 1000

TC
IG so 1 1.867 6.20715200

33,430.00
 S setup cost

a EPQ
totalquantityyou

Production Rate Demand Rate

 p Q Pt too oD p t 10 10 too

mat led t
60
Ip w
i

iii it
pd
toinventory
i
Let p daily production rate
d 4units
d daily demand rate t 10 days
of productiondays the endof 10days there will be
t
Imax 60units
Q Economic Production Qty inventory builds up gradually
mm man nm over time
 same as EOQ model

jetliner
mat inventory t min inventory
I l
dy Q
p d t EO
Z oh

Imax E Ig OH

popping
2
Ima

Imax p d
dp Q
1
g
 I my up

to
Ios E i
g it

where
d average daily demand rate
p daily production rate

set total ordering costs total holding cost

s it l
dy
formula for optimal
production quantity
solve for Q

if FEE
 dailypgduction

5 800
H 18

a
EEE FEET
2000 units
180
TC 71800 f 187 1
E
14 400
R 75 Sdays 375 units
demand and leadtimes
are known and constant
 EOQ Model w Safety Stock
Basic EOQ Model

ventory Q orderquantity inventory Q orderquantity

L lead time L lead time
R reorder point R reorder point
Q O a 55 Safety stock

Lyde
R dl Ss

time
Leadtime time
Leadtime
service level percentage that how
indicates
p Ots
much inventory a firm will carry
to protect itself from a stockout Q Ffs
 R dL t Ss

SS Safety stock in units

20dL Z od F

Themore uncertain
the more ss youneed
to protect urself
service level A Ss
 d2 5000 stockout o og
service and 0.96 2 1.75
0dL 300
z 0dL
1.75 300

di 55
525 units

5000 525 5525 units

M É
Alternate Example
UM l s cuz
d 2500 units week 525 units
L 2 Weeks R di 55 2500 2 525
og az 5525 units
Odi ALI
Jdl Tdf

Tdi do
 TI d rpt L SS
where
TI target inventory level in units
 Review Period I week d 6000
lead time 3 weeks od Soo

us zod

TI
Nth
1.6457150075
d RP L
3
1645 units

SS safetystock
enough to protect
firm from sand
stock AE zy.us
6000 1 3 1645 25,645 units

Q TI OH
guys 19000 6645 units
Bigticket items Jewellery Foreign Cars model more difficult to
would fit this model
implement forsuppliers
00 Quantity ordered s so 0.1
Qd Quantity Demanded 10 so 0.2
1250 0.24
1550 0.3
possible scenarios
8150

i 00 Qd 50 observations

ii Q0 a Qa
iii 00 Qd
 0.1
0.2 0.70
00 Qd
payoff Q0 p c
0.24
0.30
0.16
8.78
0.70
ODD
Eg Q Qd I
payoff iii ooo

0
Qd payoff Q pd
Eg Q I 09 2
payoff I 1.00 030 0.70

they couldn't
If there is a stockout cost sell ble no stock
Img
Payoff go p g ga
 0.50

00 Qd

payoff Qd p c Q Qd c Q Qd s
salvage costs
Qd p c Q Qd c s

Eg 00 2 09 1
payoff I 1.00 0.30 2 1 0.30 0.107
0.50
Expected profit Q0 5 payoff probability
0.2471.70 0.3 2.60
0.10 0.107 0.271080
0.16 350
 REACHED
production begins when customers place order
pushsystem production begins in anticipation of customerorder

speculative
 FEE
to
TH
where
D annual demand
s setup cost
H annual holding cost per unit
d averagedaily demand
p average daily production