lect9 - Inventory Management Time Varying Demand Fixed...

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Inventory Management Time Varying Demand Fixed Planning Horizon Chris Caplice ESD.260/15.770/1.260 Logistics Systems Oct 2006
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© Chris Caplice, MIT 2 MIT Center for Transportation & Logistics – ESD.260 Demand Constant vs Variable Known vs Random Continuous vs Discrete Lead time Instantaneous Constant or Variable (deterministic/stochastic) Dependence of items Independent Correlated Indentured Review Time Continuous Periodic Number of Echelons One Multi (>1) Capacity / Resources Unlimited Limited / Constrained Discounts None All Units or Incremental Excess Demand None All orders are backordered Lost orders Substitution Perishability None Uniform with time Planning Horizon Single Period Finite Period Infinite Number of Items One Many Form of Product Single Stage Multi-Stage Assumptions: Basic FPH Model
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© Chris Caplice, MIT 3 MIT Center for Transportation & Logistics – ESD.260 Example 0 50 100 150 200 250 300 Demand 1 2 3 4 5 6 7 8 9 10 11 12 Month When should I order and for how much? More Assumptions Demand is required and consumed on first day of the period • Holding costs are not charged on items used in that period • Holding costs are charged for inventory ordered in advance of need Costs D = 2000 items per year A = $500.00 per order v = $50.00 per item r = 24% per item per year C hm = rv/N = 1 $/month/item N = number of periods per year
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© Chris Caplice, MIT 4 MIT Center for Transportation & Logistics – ESD.260 Methods Used Different Approaches 1. Simple Heuristics The One-Time Buy Lot For Lot Fixed Order Quantity (FOQ) Periodic Order Quantity (POQ) 2. Optimal Procedures Wagner-Whitin (Dynamic Programming) Mixed Integer Programming 3. Specialty Heuristics The Silver Meal Algorithm Least Unit Cost (LUC) Part-Period Balancing (PPB)
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© Chris Caplice, MIT 5 MIT Center for Transportation & Logistics – ESD.260 Simple Heuristics One Time Buy Lot for Lot Fixed Economic Order Quantity Periodic Order Quantity
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© Chris Caplice, MIT 6 MIT Center for Transportation & Logistics – ESD.260 Approach: One-Time Buy 0 200 400 600 800 1000 1200 1400 1600 1800 2000 On Hand Inventory 1 2 3 4 5 6 7 8 9 10 11 12 Month 2000 Policy Buy D at time 0 0 50 100 150 200 250 300 Demand 1 2 3 4 5 6 7 8 9 10 11 12 Month
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