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Unformatted text preview: EOQ Model: Total cost= DC +(D/Q)S +(Q/2)H =annual purchase cost + annual ordering cost+ annual holding cost total holding cost= average inventory * annual holding cost= q/2 *H Total set up cost= annual ordering cost= Demand/quantity * set up cost each time Total purchasing cost= quantity per batch * number of orders/year * price/unit Economic order quantity= the batch that incurs the least costs Number of orders= annual demand/ order quantity Frequency of orders= 12months/ number of orders Quantity that minimizes the cost= sqrt(2DS/h) Optimal batch size= EOQ= sqrt(2DS/H)=sqrt(2*Annual demand* annual set up cost/ annual holding cost/unit) Inventory related cost= D/q*S + Q/2*H Newsvendor Model : S: Setup cost (per order) / h: Holding cost (per unit per period) / c: Purchasing cost (per unit) / v: Salvage value (per unit)The value of salvage, at the end of the horizon, for excess inventory / p: Revenue per unit / g: Goodwill cost When probabilities given, calculate the orders with proba given to find the best order quantity Shortage cost= pc Overage cost= cv Marginal value analysis: The expected Marginal Value =  Expected overage cost : (c  v) * Pr {Demand<=Q} + Expected additional profit: (p  c) * Pr {Demand>Q} To find the optimal purchase quantity, set the marginal value to zero (or choose the first purchase quantity for which the marginal value becomes negative for a discrete demand distribution So, increase the order size until P(D Q) C U / (C O +Cu) where Co is overage cost and Cu underage cost F(Q)= Cu/Co+Cu = means that it is optimal that F(Q) % of the time the demand is satisfied = service level for normal distribution it is optimal to have Mean + z*standard deviation from table or from excel...
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This note was uploaded on 09/11/2011 for the course BUAD 311 taught by Professor Vaitsos during the Spring '07 term at USC.
 Spring '07
 Vaitsos
 Management

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