Review

# E there are no lost sales inventory level on hand

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: l amount of demand that has has not been satisﬁed: • All backordered demand is eventually ﬁlled, i.e., there are no lost sales. • Inventory level = On-hand inventory - Backorder. • Inventory position = On-order inventory + Inventory level. • Order up-to level = S • the maximum inventory position we allow. • sometimes called the base stock level. What determines the inventory level? • Short answer: • • Inventory level at the end of a period = S - demand over (l+1) periods. Explanation via an example • with S = 6, l = 3, and 2 units on-hand, 2 on the way at the start of period 1 x3 x1 1 2 x4 x2 1 D1 2 D2 D3 D4 ? Meet the Service Target • Decide S to make in-stock probability ≥ α • Demand D over l+1 period • • Standard normal distribution Probability (D<S) is ! ! • µ=(l+1)λ, σ=sqrt((l+1)λ) p= S (l + 1) p (l + 1) ! square root law So the order up-to quantity S is S = (l + 1) + 1 (↵ ) p (l + 1) Choose the Service Target 1.Based on experience if no quantitative measures are available. 2.Quantitative Method • “Too much-too little” challenge: • If S is too high, then there are holding costs, Co = h • • If S is too low, then there are backorders, Cu = b • • h equal the holding cost per unit per period b equal the penalty per unit backordered Optimal in-stock probability • In-stock probability = critical ratio Cu b ↵= = Co + Cu h+b Part 4: News Vendor Model A review of News Vender problem • Proﬁt function • demand of news paper: D • order quantity: q • order price: c • selling price: p • salvage value: s ⇡ (q ) = pE(mi...
View Full Document

## This document was uploaded on 01/28/2014.

Ask a homework question - tutors are online