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Lecture-W01-2

# Lecture-W01-2 - MBAC6080 Decision Modeling and Applications...

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1 MBAC6080 Thomas Vossen Assistant professor of Operations Management Leeds School of Business University of Colorado Boulder, CO 80309-0419 Decision Modeling and Applications

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Lecture 1-2, 1-16-2008 2 MBAC6080 Issues in Decision-Modeling
Lecture 1-2, 1-16-2008 3 MBAC6080 Example 1: EOQ Situation: Retailer faces constant demand for a single item Costs: C O : Order Costs C H : Inventory Carrying Costs Questions: How much to order? When to order?

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Lecture 1-2, 1-16-2008 4 MBAC6080 EOQ Situation On-hand Inventory Time Q Demand Rate, D Time Between Orders (Order Cycle) = Q/D Average Cycle Inventory, Q/2 Reorder Point, R Q/2
Lecture 1-2, 1-16-2008 5 MBAC6080 Economic Order Quantity Cost Model: Constant Demand, No Shortages TC = total annual inventory cost D = annual demand (units / year) Q = order quantity (units) C O = cost of placing an order or setup cost (\$) C H = annual inventory carrying cost (\$ / unit /year) Total Annual Inventory Cost = Annual Ordering Cost TC(Q) = ( D / Q ) C O + ( Q / 2) C H Annual Holding Cost +

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Lecture 1-2, 1-16-2008 6 MBAC6080 Cost Relationships for Basic EOQ (Constant Demand, No Shortages) Order Quantity Annual Cost Total Cost Carrying Cost Ordering Cost EOQ balances carrying costs and ordering costs in this model.
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Lecture-W01-2 - MBAC6080 Decision Modeling and Applications...

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