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4QA3 F12 Week 8 Lecture Notes

Similar to deterministic models it is assumed

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Unformatted text preview: s not change with time. Thus, the criterion that will be used to determine the optimal policy is the minimization of the average annual cost. 4QA3 F12 A. Gandomi 5 For deterministic models, it is never optimal to have any stock on hand when an order arrives. However, when demands are described probabilistically, the optimal safety stock in most cases should be positive. ●  Inventory Level The expected value of the inventory on hand at the time an order arrives Q Q Q Inventory Level R Q R s τ 4QA3 F12 τ A. Gandomi Time 6 ●  ●  ●  ●  ●  Inventory levels are reviewed continuously. Demand is random and stationary (the expected value of demand, λ, over any time interval of Sixed length is constant). There is a Sixed positive lead time, τ, for placing and order. Excess demand is backordered. Costs: o  K: Fixed ordering cost (setup cost), o  c: Per- unit or...
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