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EOQ:
The order size that minimizes the total inventory costs including:
v
purchasing cost
A
fixed ordering cost
h
inventory holding cost
h=r*v
Assumption of EOQ:
? There is a single (independent) product.
? The demand rate is known, constant, stationary, and continuous.
? The lead time is known and constant.
? The entire lot is received instantaneously and all at the same time
? No stockkouts are permitted.
‐
? The cost structure is known and stationary.
? Planning horizon is infinite (very long).
T
cycle time
Q=T*D
Q
order quantity
D
demand
EOQ Cost:
Qv
purchasing cost
Qv+A+QTh/2
A
setup cost
QTh/2
holding cost
EOQ down=> decrease A or h
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View Full Document Formula:
Q=T*D
Total cycle cost:
Qv+A+QTh/2
Avg cycle cost:
(Qv+A+QTh/2)/T
cycle cost/cycle time
TC(Q)= Dv+AD/Q+hQ/2
when Avg annual setup cost=Avg annual in
Q*= sqrt(2AD/h)
TC(Q*)=
Dv+hQ*
TC(Q*)= Dv+sqrt(2ADh)
The number of months of dem
= sqrt(288A/Dh)
Implied tureover ratio:
TR= D/I~= 2D/EOQ
=sqrt(2Dh/A)
operational cost, OC(Q)=
AD/Q+hQ/2
Percentage cost penalty for using Q' instead of Q*:
PCP= 50* P^2/(1+p)
when Avg cycle cost=
Avg annual cost
:
therefore,
EOQ=
T
EOQ
= 12EOQ/D
nv cost:
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This note was uploaded on 09/26/2009 for the course OM 550 taught by Professor Kin during the Spring '09 term at Universidad Católica del Maule.
 Spring '09
 KIN

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