Download presentation

Presentation is loading. Please wait.

Published byAshleigh Finchum Modified over 2 years ago

1
ISEN 315 Spring 2011 Dr. Gary Gaukler

2
Inventory Control Deterministic inventory control Stochastic inventory control MRP / Lot sizing / JIT Supply chain management

3
Reasons for Holding Inventories

4
Relevant Costs Holding Costs - Costs proportional to the quantity of inventory held.

5
Relevant Costs (continued) Ordering Cost (or Production Cost). Can include both fixed and variable components. slope = c K

6
Relevant Costs (continued) Penalty or Shortage Costs. All costs that accrue when insufficient stock is available to meet demand.

7
Simple EOQ Model Assumptions: 1. Demand is fixed at units per unit time. 2. Shortages are not allowed. 3. Orders are received instantaneously. 4. Order quantity is fixed at Q per cycle. 5. Cost structure: a) Fixed and marginal order costs (K + cx) b) Holding cost at h per unit held per unit time.

8
Inventory Levels for the EOQ Model

9
Cost Equation for the EOQ Model

10
The Average Annual Cost Function G(Q)

11

12
Properties of the EOQ Solution

13
Example Desk production rate = 200 per month Each desk needs 40 screws Screws cost $0.03 Fixed delivery charges are $100 per order 25% interest rate for holding cost What is the optimal order size?

14
Example

15
EOQ Cost Function

16
Quantity Discount Models All Units Discounts: the discount is applied to ALL of the units in the order. Incremental Discounts: the discount is applied only to the number of units above the breakpoint.

17
All-Units Discount Order Cost Function

18
Incremental Discount Order Cost Function

19
All-unit Discount Compute EOQs for all discounts Find realizable EOQ values Compare cost of realizable EOQ with cost at breakpoints

20
All-Units Discount Average Annual Cost

21
All-unit Discount Optimality

22
Incremental Discount Cost structure:

23
Incremental Discount Establish C(Q) curve Determine cost per unit C(Q)/Q Substitute C(Q)/Q into G(Q) Compute G(Q) for each range Pick feasible solution with lowest cost

24
Average Annual Cost Function for Incremental Discount Schedule

25
Incremental Discount Example Demand 600 bags / year Setup cost for ordering: $8 Unit cost –Up to 500: $0.30 –Up to 1000: first 500 at $0.30, remaining at $0.29 –Over 1000: first 500 at $0.30, next 500 at $0.29, remaining at $0.28 Holding cost: 20%

26
Incremental Discount Example

27

28

29
Properties of the Optimal Solutions For all units discounts, the optimal will occur at the bottom of one of the cost curves or at a breakpoint. One compares the cost at the largest realizable EOQ and all of the breakpoints succeeding it. For incremental discounts, the optimal will always occur at a realizable EOQ value. Compare costs at all realizable EOQs.

Similar presentations

© 2016 SlidePlayer.com Inc.

All rights reserved.

Ads by Google