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Lecture 3 Notes

# Lecture 3 Notes - Space IOE 202 lecture 3 outline...

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Space IOE 202: lecture 3 outline Announcements Last time... Optimization problems and optimization models Another example of a Linear Programming model: Monet picture frames Linear Programming (LP) optimization models — brief history Solving small LP models graphically and interpreting solutions IOE 202: Operations Modeling, Fall 2009 Page 1 Space Last time Extension of the EOQ model for inventory management: quantity discounts Pet food supplier’s inventory problem Does not fit EOQ framework; di ff erent model needed Identified Decisions that need to be made Performance measure used to evaluate solutions Restrictions/constraints on decisions Simplifying assumptions made in the modeling process Started formulating a model of the problem IOE 202: Operations Modeling, Fall 2009 Page 2

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Space Another inventory management problem 1 You are the Michigan distributor of Nature’s Peak, a high-end brand of frozen dog food. You have (pre-paid) contracts with local “boutique” pet stores to deliver, in each of the next 4 months, respectively, 50, 65, 100, and 70 lb of food, and these orders must be filled on time. You obtain the food from the manufacturer at wholesale prices which vary month to month. In the next four months, unit prices are \$5, \$8, \$4, and \$7 per pound, respectively, and you can buy at most 80 lb each month. Food needs to be delivered to the stores at the end of each month. You place your order with the manufacturer in the beginning of each month, receive your order at the end of the month, and immediately deliver food to the local stores. If you have food remaining after the demand has been satisfied, you can keep some of in your wearhouse at a cost of \$2 per pound per month until the next delivery, and donate the rest to the Humane Society. In 4 months, Nature’s Peak is planning to change the recipe and packaging for this food. If you have any food left at that time, you can sell it to discount pet stores in the area for \$6 per pound. (Until then, the company wants to maintain the product’s high-end image.) How should you manage your inventory for the next 4 months? 1 Section 4.12 of Denardo describes a problem in which such inventory management issues are part of the decisions IOE 202: Operations Modeling, Fall 2009 Page 3 Space Operational decisions in the pet food distributor’s problem What decisions do you need to make for the coming 4 months? How many pounds of food to order in each of the next 4 months How many pounds of food to store in each of the next 3 months, and how much to sell after 4th month How many pounds of food to donate in each of the next 4 months What performance measure would you use to compare di ff erent decisions? Net cost (Ordering and holding costs, minus the revenue from resale at the end) — to be minimized What constraints (restrictions) must your decisions satisfy?
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Lecture 3 Notes - Space IOE 202 lecture 3 outline...

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