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Unformatted text preview: h = holding cost per item c = variable cost per item When unknown demand is assumed normal with no underage or overage costs given, use: Step 1: Q(o) = Sqrt( 2*Lambda*K / h) F(D)(Ro) = 1 – Q(o)*h / (Price of shortage per unit*Lambda) Step 2: Q(i) = Sqrt( 2*Lambda*[K+p*n(R(i1))] / h) F(D)(Ri) = 1 – Q(i)*h / (Price of shortage per unit*Lambda) If Qi approximately equals Q(i1) or Ri approx. equals R(i1), then stop and use those quantities for Q and R, otherwise, continue step 2 until this occurs. n(R) = expected # of shortages = σ*L(z) = σ*L((Rμ)/σ) L(z) can be looked up in Table A4 R = μ + Φ(1 – Q*h/(p*lambda))*σ Safety Stock = s = Reordering Point – Lambda * Lead Time Holding Cost Over Avg. Cycle = (Reordering Point – Lambda * Lead Time + Q* / 2)*h*Q / Lambda p = penalty cost Shortage Cost Per Cycle = p*n(R)...
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 Spring '08
 Kobza
 Approximation

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