Student version - Ch5 - part 3

Student version - Ch5 - part 3 - MGMT 361 Operations...

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MGMT 361 Operations Management (OM) 1 Chapter 5 Inventory Management part 3
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2 No. Model Objective Used for 1 EOQ Min. Annual Inventory Cost Purchase 2 EPQ Production 3 EOQ with discounts Min. Total cost Purchase 4 Lot Sizing Purchase / production We will consider inventory control of a single product. We will start with 4 deterministic models. Then we will study 3 probabilistic models. No Model Objective Used for 5 Reorder point Achieve desired service level Purchase 6 Fixed order interval 7 Newsvendor Min. expected cost
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Intro to Lot Sizing Purpose - A lot sizing rule determines the timing and size of order quantities. The choice of lot-sizing rules is important because they determine the number of setups required and the inventory holding costs for each item Lot-for-Lot (L4L) This rules ensures that the planned order is just large enough to prevent a shortage in the single week it covers. Order whatever quantity is needed to meet demand for the period Fixed order quantity (FOQ) This rule maintains the same order quantity each time an order is issued. Quantity is selected from experience often times based on how many items can fit into a furnace, onto a truckload, or a minimum purchase quantity, etc. Period order quantity (POQ) this rule allows a different order quantity for each order issued but tends to issue the order at predetermined time intervals. 3
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4 1 There are n periods. 2 Demand for each period is known. 3 No shortages are permitted. 4 Lead-time is zero (we will modify this later.). 5 We maintain specified inventory (called Safety Stock ) 4 Lot sizing models Method Text Class Comments 1 Lot for lot L4L Order every period 2 Fixed order quantity. FOQ Order fixed quantity 3 Period order quantity. POQ Order every x periods 4 Economic order quantity EOQ ch 7 These models require cost parameters. 5 Least total cost LTC ch 7 6 Least unit cost LUC ch 7
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5 4a: Lot for lot (L4L) Period 0 1 2 3 4 5 6 7 8 9 10 Demand 35 40 30 0 80 20 0 0 75 70 Order whatever quantity is needed to meet demand for the period. Q Inventory 30 Example 4.1 15 10 40 10 30 10 80 20 0 0 75 70 10 10 10 10 10 10 Initial inventory = 30, Safety Stock (SS)= 10 0 10 Inventory t >= SS Q t = Demand t + SS Inventory (t-1) What would be Q for P1 if the initial inventory is 60? Notice that the inventory cannot fall below Safety Stock. Q 1 =35+10 -30 = 15 Q 2 =40+10 -10 = 40 Q 3 =30+10 -10 = 30
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6 Fixed order quantity (Q F ) is selected from experience. Equal to 1 truck load? Order more than 1 lot if necessary. Period 0 1 2 3 4 5 6 7 8 9 10 Demand 35 40 30 0 80 20 0 0 75 70 Q F = 50 Inventory 30 50 45 50 55 - 25 - 25 100 45 - 25 - 25 - 25 100 50 50 30 4b: Fixed order quantity (FOQ QF) Initial inventory = 30, SS = 10 Use FOQ 50 1. If there is enough inventory to meet demand & keep SS – pull from inventory. If not order > or = 1 lot. 2.
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Student version - Ch5 - part 3 - MGMT 361 Operations...

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