Chapter02 mn bra btsa3d - 1 Wallace J. Hopp, Mark L....

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Unformatted text preview: 1 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com The EOQ Model To a pessimist, the glass is half empty. to an optimist, it is half full. Anonymous 2 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com EOQ History Introduced in 1913 by Ford W. Harris, How Many Parts to Make at Once Interest on capital tied up in wages, material and overhead sets a maximum limit to the quantity of parts which can be profitably manufactured at one time; set-up costs on the job fix the minimum. Experience has shown one manager a way to determine the economical size of lots. Early application of mathematical modeling to Scientific Management 3 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com MedEquip Example Small manufacturer of medical diagnostic equipment. Purchases standard steel racks into which components are mounted. Metal working shop can produce (and sell) racks more cheaply if they are produced in batches due to wasted time setting up shop. MedEquip doesnt want to tie up too much precious capital in inventory. Question: how many racks should MedEquip order at once? 4 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com EOQ Modeling Assumptions 1. Production is instantaneous there is no capacity constraint and the entire lot is produced simultaneously. 2. Delivery is immediate there is no time lag between production and availability to satisfy demand. 3. Demand is deterministic there is no uncertainty about the quantity or timing of demand. 4. Demand is constant over time in fact, it can be represented as a straight line, so that if annual demand is 365 units this translates into a daily demand of one unit. 5. A production run incurs a fixed setup cost regardless of the size of the lot or the status of the factory, the setup cost is constant. 6. Products can be analyzed singly either there is only a single product or conditions exist that ensure separability of products. 5 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com Notation D demand rate (units per year) c unit production cost, not counting setup or inventory costs (dollars per unit) A fixed or setup cost to place an order (dollars) h holding cost (dollars per year); if the holding cost is consists entirely of interest on money tied up in inventory, then h = ic where i is an annual interest rate. Q the unknown size of the order or lot decision variable 6 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com Inventory vs Time in EOQ Model Q/D 2 Q/D 3 Q/D 4 Q/D Q Inventory Time 7 Wallace J. Hopp, Mark L. Spearman, 1996, 2000 http://www.factory-physics.com Costs Holding Cost: Setup Costs: A per lot, so Production Cost: c per unit Cost Function: D hQ hQ Q 2 cost holding unit 2 cost holding annual 2 inventory average = = = Q A = cost setup unit c Q A D hQ Q Y + + = 2 ) ( 8...
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This note was uploaded on 04/25/2010 for the course IE 654 taught by Professor Smith during the Spring '10 term at 카이스트, 한국과학기술원.

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Chapter02 mn bra btsa3d - 1 Wallace J. Hopp, Mark L....

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