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CDAE 266 - Class 25 Nov. 29 Last class: Result of group project 2 5. Inventory decisions Today: Result of Quiz 6 5. Inventory decisions Problem set 5 Class evaluation Next class: 5. Inventory decisions Quiz 7 (optional quiz for extra credit).
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CDAE 266 - Class 25 Nov. 29 Last class: Result of group project 2 5. Inventory decisions Today: Result of Quiz 6 5. Inventory decisions Problem set 5 Class evaluation Next class: 5. Inventory decisions Quiz 7 (optional quiz for extra credit)
CDAE 266 - Class 25 Nov. 29 Important dates: Problem set 5: due Thursday, Dec. 6 Problems 6-1, 6-2, 6-3, 6-4, and 6-13 from the reading package Final exam, 8:00-11:00am, Monday, Dec. 10 $10 for the reading packages: due Thursday, Nov. 29
N = 51 Range = 5.5 – 10 Average = 8.7 1. Graphical presentation of the EOQ model 2. Analysis of an EOQ model Result of Qui 6
5. Inventory analysis and applications 5.1. Basic concepts 5.2. Inventory cost components 5.3. Economic order quantity (EOQ) model 5.4. Inventory policy with backordering 5.5. Inventory policy and service level 5.6. Production and inventory model
Take-home class exercise • (Tuesday, Nov. 27) • 1. Draw a graph to show the following inventory policy for • a business with no backordering: the annual demand is • 3650 units and the business opens 365 days a year, the • order quantity is 305 units and the lead time is 4 days. • If some customers of the above business are willing to • take backorders and the maximum backorders are 50 units, draw another graph to show the inventory policy (there is no change in order quantity and lead time) • 3. Take-home exercise: Example on pp. 215-216 with the annual demand (A) increased to 1200 units and the lead time to be 3 days.
5.3. The economic order quantity (EOQ) model 5.3.5. Lead time (L), reorder point (R) and safety stock (SS) and their impacts (1) Inventory policy: Q: order quantity R: reorder point (Note that R is related to T but they are two different variables) (2) In the basic EOQ model: Q* = L = 0 ==> R* = L x A = 0 (3) If L > 0, R= L x A (the units of L & A must be consistent)
5.3. The economic order quantity (EOQ) model 5.3.5. Lead time (L), reorder point (R) and safety stock (SS) and their impacts (4) If the lead time is zero (L=0) and the co. wants to keep a safety stock (SS), R = L x A + SS = SS (5) If the lead time is greater than zero (L>0) and the co. wants to keep a safety stock, R = L x A + SS (6) Impacts of L & SS on R*, Q* and TC: No impact on Q* L ==> no impact on TC SS ==> increase TC by (hc * SS)
5.4. Inventory policy with backordering 5.4.1. A graphical presentation (page 214) A = Annual demand (e.g., 7300 kg per year) Q = order quantity [e.g., 200 kg per order (delivery)] S = Maximum on-hand inventory (e.g, 150 kg) Q - S = Maximum backorders (e.g., 50 kg) T = A/Q = time for each inventory cycle (e.g., T = 200/7300 = 0.0274 yr = 10 days) T1 = S/A = the time with on-hand inventory (e.g., T1 = 150/7300 = 0.0206 yr = 7.5 days) T2 = (Q-S)/A = T - T1 (e.g., T2= 50/7300 = 0.00685 yr = 2.5 days) T1/T = Proportion of time with on-hand inventory T2/T = Proportion of time without on-hand inventory Lead time and reorder point (e.g., L = one day)
5.4. Inventory policy with backordering 5.4.2. Total relevant (variable) inventory cost TC = annual ordering cost + annual holding cost + annual shortage (goodwill cost) = …… (see page 214) p = per unit goodwill (shortage) cost per year (e.g., p=$2 per unit per year) 5.4.3. Optimal inventory policy (page 215) Q* = S* = R =
5.4. Inventory policy with backordering 5.4.4. Example (pp. 215-216) A = 1000 cases of wine per year K = $100 per order (delivery) C = $20 per case h = $0.20 per dollar value per year p = $3.65 per unit of shortage per year L = 0 Q* = S* = R =