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Lecture 8

# Lecture 8 - 540:453 Production Control Lecture 8...

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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 trade-off 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 imported-car 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 on-hand plus on- order inventory?order inventory?...
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Lecture 8 - 540:453 Production Control Lecture 8...

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