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AGENDA
•
QUANTITY DISCOUNT MODEL
•
REORDER POINT
•
PROBABLISTIC DEMAND
•
FIXED ORDER POINT SYSTEM
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þ
Reduced prices are often available when
larger quantities are purchased
þ
Tradeoff is between reduced product cost and
increased holding cost
Total cost = Setup cost + Holding cost + Product cost
TC =
S
+
H
+
PD
D
Q
Q
2
Quantity Discount Models
Discount
Number
Discount Quantity
Discount (%)
Discount
Price (P)
1
0
to
999
no discount
$5.00
2
1,000
to
1,999
4
$4.80
3
2,000
and over
5
$4.75
Table 12.2
A typical quantity discount schedule
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1.
For each discount, calculate Q*
2.
If Q* for a discount doesn’t qualify, choose
the smallest possible order size to get the
discount
3.
Compute the total cost for each Q* or
adjusted value from Step 2
4.
Select the Q* that gives the lowest total
cost
Steps in analyzing a quantity discount
Quantity Discount Models
1,000
2,000
Total cost $
0
Order quantity
Q* for discount 2 is below the allowable range at point a and
must be adjusted upward to 1,000 units at point b
a
b
1st price
break
2nd price
break
Total cost
curve for
discount 1
Total cost curve for discount 2
Total cost curve for discount 3
Figure 12.7
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Calculate Q* for every discount
Q* =
2DS
IP
Q1* =
= 700 cars/order
2(5,000)(49)
(.2)(5.00)
Q2* =
= 714 cars/order
2(5,000)(49)
(.2)(4.80)
Q3* =
= 718 cars/order
2(5,000)(49)
(.2)(4.75)
Quantity Discount Example
Calculate Q* for every discount
Q* =
2DS
IP
Q1* =
= 700 cars/order
2(5,000)(49)
(.2)(5.00)
Q2* =
= 714 cars/order
2(5,000)(49)
(.2)(4.80)
Q3* =
= 718 cars/order
2(5,000)(49)
(.2)(4.75)
1,000 — adjusted
2,000 — adjusted
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Discount
Number
Unit
Price
Order
Quantity
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This note was uploaded on 10/30/2011 for the course BUS 451 taught by Professor Bilbrey during the Spring '11 term at Anderson University SC.
 Spring '11
 Bilbrey

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