Krajewski IN Supplement D - Supplement D Special Inventory...

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Supplement D Special Inventory Models TEACHING TIP This chapter covers some realistic situations that require relaxation of one or more assumptions from the EOQ: noninstantaneous replenishment, quantity discounts, and one-period decisions. A. Noninstantaneous Replenishment 1. Maximum cycle inventory a. Item used or sold as it is completed, without waiting for a full lot to be completed. b. Usual case is where production rate, p , exceeds the demand rate, d , so there is a buildup of ( 29 d p - units per time period when both production and demand occur. c. Both p and d expressed in same time interval, such as days. d. Buildup continues for p Q days because Q is the lot size and p units are produced each day. e. Maximum cycle inventory is: I max = Q p p - d ( 29 = Q p - d p where = p production rate = d demand rate = Q lot size f. Cycle inventory is no longer 2 Q , as with the basic EOQ method, instead, it is 2 max I . 2. Total cost a. Total annual cost = Annual holding cost + Annual ordering or setup cost D is annual demand and Q is lot size, as before (in the basic EOQ) d is daily demand; p is daily production rate ( 29 ( 29 ( 29 ( 29 S Q D H p d p Q S Q D H I C + - = + = 2 2 max 3. Economic Production Lot Size (ELS): optimal lot size a. Derived by calculus. D-1
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D-2 Supplement D: Special Inventory Models b. Because the second term is greater than 1, the ELS results in a larger lot size than the EOQ. d p p H DS ELS - = 2 4. Noninstantaneous Replenishment. Use Application D.1 to show the difference between the ELS model and the EOQ model. A domestic automobile manufacturer schedules 12 two-person teams to assemble 4.6 liter DOHC V-8 engines per work day. Each team can assemble 5 engines per day. The automobile final assembly line creates an annual demand for the DOHC engine at 10,080 units per year. The engine and automobile assembly plants operate 6 days per week, 48 weeks per year. The engine assembly line also produces SOHC V-8 engines.
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