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Student version Ch5 section2

Student version Ch5 section2 - MGMT 361 Operations...

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MGMT 361 Operations Management (OM) 1 Chapter 5 Inventory Management part 2
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Today EPQ E conomic production quantity EOQ Economic order quantity EOQ Economic order quantity with quantity discounts Examples of EOQ with quantity discounts Example of EPQ considering different vendors 2
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EPQ - Economic production quantity Similar to EOQ, the only difference is that units are received incrementally during production while in EOQ, units are received all at once. Particularly useful for batch process. Production is periodic 3
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Assumptions of EPQ Only one item is involved Annual demand is known The usage rate is constant Usage occurs continually, but production occurs periodically The production rate is constant Lead time does not vary There are no quantity discounts 4
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5 2 EPQ model Objective: Minimize annual inventory cost. 1 Demand is known, occurs at uniform rate. D: [ Q / T ] 2 Setup cost S is fixed, incurred for each setup. S: [ $ ] 3 Holding cost H charged on average inventory H: [ $ / (Q*T) ] 4 Production lot size Q is fixed Q: [ Q ] 5 No shortages permitted. 6 Production rate (p) is uniform. p: [ Q / T ] D ” usually denotes annual demand. Usage Rate : u is the daily demand. Production rate: p is the production per day.
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