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Unformatted text preview: 540:453 Production Control Lecture 8: Sensitivity of EOQ and Exchange Curves Prof. T.O. Boucher 1 The basic EOQ model The EOQ model forms the basis for all the inventory control models. It treats the basic tradeoff between the fixed cost of ordering and the variable cost of holding. If h represents the holding cost per unit time and A the fixed cost of setup, then we show that the order quantity that minimizes costs per unit time is where D is the rate of demand. 2 h AD Q 2 * = Example A large automobile repair shop installs about 12,500 mufflers/year. All the mufflers are purchased from a single local supplier at a cost of $18.50 each. The shop uses a holding cost based on a 25% annual interest rate. The setup cost for placing an order is $28. Determine the optimal number of EOQ of importedcar mufflers, and the time between placement of orders If the replenishment lead time is 6 weeks, what is the reorder point based on the level of onhand plus on order inventory?order inventory?...
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This note was uploaded on 11/13/2011 for the course PHY 341 taught by Professor Gawsier during the Spring '11 term at Rutgers.
 Spring '11
 Gawsier
 Physics

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