4QA3 F12 Week 7 Lecture Notes

Includes both iixed and variable components cost of

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Unformatted text preview: dependent ●  Lead times: o  Known or unknown. 4QA3 F12 A. Gandomi 11 ●  Review Time: o  Periodic or continuous ●  Treatment of excess demand: o  Backorder all excess demand o  Lose all excess demand o  Backorder some and lose some ●  Changing inventory: o  Perishability o  Obsolescence 4QA3 F12 A. Gandomi 12 ●  Costs proportional to the quantity of inventory held: o  Cost of physical space, o  Taxes and insurance, o  breakage, spoilage and deterioration, o  Opportunity cost of alternative investment. ●  In general, the holding cost is proportional to the area under the inventory curve. 4QA3 F12 A. Gandomi Source: Nahmias (2009) 13 Depends on the amount of inventory that is ordered or produced. ●  Includes both Iixed and variable components. Cost of ordering x units ●  !0 if x = 0 C( x) = " # K + cx if x > 0 x 4QA3 F12 A. Gandomi 14 ●  All costs that accrue when insufIicient stock is available to meet demand: o  Costs of bookkeeping for backordered demands, o  Loss of goodwill for being unable to satisfy demands when they occur, ●  2.2 EOQ Model with Backordering Allowed Generally, the shortage cost is assumed to be proportional to the amount of excess demand. D Slope= - Q-B T2 0 A C F T1 B 4QA3 F12 A. Gandomi E 15 1.  Demand is Iixed at λ units per unit time, 2.  Shortages are not allowed, 3.  Orders are received instantaneously. 4.  Cost structure: a)  Fixed and marginal ordering costs (K + cx) b)  Holding cost at h per unit held per unit time 4QA3 F12 Source: Nahmias (2009) 16 K: Iixed ordering cost h: annual per- unit...
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