Lecture 2 notes

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Unformatted text preview: Space IOE 202: Lecture 2 outline ￿ ￿ ￿ Announcements Last time... Inventory management problems and models: ￿ ￿ Economic Order Quantity models: continued A different inventory management situation (and a Linear Programming model) IOE 202: Operations Modeling, Fall 2009 Page 1 Space Last time ￿ Problems of maintaining and replenishing inventory ￿ One of the issues: balancing holding costs vs. ordering and shortage costs Long-term planning: ￿ ￿ ￿ ￿ First example: a problem with ￿ Known, steady demand Known costs (setup and per unit ordering, holding) that do not change over time Known lead time that does not change over time ￿ ￿ No (planned) shortages allowed Continuous review Select a batch size Q items Order a batch of size Q just as you are about to run out What is the “Economic Order Quantity”? Page 2 ￿ Approach to managing inventory: ￿ ￿ ￿ What value of Q maximizes net profits? ￿ IOE 202: Operations Modeling, Fall 2009 Space Inventory level over time Q Inventory Level -a Q/a Time IOE 202: Operations Modeling, Fall 2009 Page 3 Space Inputs and outputs of EOQ models Definition Units a Demand per unit of time unit/unit of time L Lead time units of time K Setup cost for ordering one batch $ c Cost for purchasing one unit $/unit h Holding cost per unit per unit of time held $/(unit×unit of time) Q Order Quantity (batch size) unit Q /a Time between orders unit of time T (Q ) Cost per unit of time $/unit of time Note: sales revenue d...
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