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ISEN 315 Spring 2011 Dr. Gary Gaukler

ISEN 315 Spring 2011 Dr. Gary Gaukler. Review: Prototype LP Problem. Desk manufacturer Regular and rolltop desks, made of wood Regular: 20 sqft pine, 16 sqft cedar, 10 sqft maple Rolltop : 10 sqft pine, 4 sqft cedar, 15 sqft maple. Review: Prototype LP Problem. Profits:

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ISEN 315 Spring 2011 Dr. Gary Gaukler

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  1. ISEN 315Spring 2011Dr. Gary Gaukler

  2. Review: Prototype LP Problem • Desk manufacturer • Regular and rolltop desks, made of wood • Regular: 20 sqft pine, 16 sqft cedar, 10 sqft maple • Rolltop: 10 sqft pine, 4 sqft cedar, 15 sqft maple

  3. Review: Prototype LP Problem • Profits: • Regular = $90 • Rolltop = $115 • Wood available: • 200 sqft pine, 128 sqft cedar, 220 sqft maple • How much to produce of each type of desk?

  4. Review: Prototype LP Problem • Decision variables: • Objective function: • Constraints:

  5. Review: Aggregate Planning LP • Parameters: • cH, cF • cI • cR • cO, cU, cS

  6. Aggregate Planning LP • Parameters: • nt • K • I0 ,W0 • Dt

  7. Aggregate Planning LP • Decision variables: • Wt • Pt • It • Ht, Ft

  8. Aggregate Planning LP • Decision variables: • Ot • Ut • St

  9. Aggregate Planning LP

  10. Aggregate Planning LP • Constraints:

  11. Aggregate Planning LP • Constraints:

  12. Aggregate Planning LP • Objective function:

  13. Aggregate Planning LP • Now: Implement and solve the problem on p.147 in Excel

  14. Hierarchy of Planning • Forecast of aggregate demand over time horizon • Aggregate Production Plan: determine aggregate production and workforce levels over time horizon • Master Production Schedule: Disaggregate the aggregate plan and determine per-item production levels • Materials Requirements Planning: Detailed schedule for production/replenishment activities

  15. Inventory Control • Deterministic inventory control • Stochastic inventory control • MRP / Lot sizing / JIT • Supply chain management

  16. Reasons for Holding Inventories

  17. Relevant Costs • Holding Costs - Costs proportional to the quantity of inventory held.

  18. Relevant Costs (continued) • Ordering Cost (or Production Cost). Can include both fixed and variable components. slope = c K

  19. Relevant Costs (continued) • Penalty or Shortage Costs. All costs that accrue when insufficient stock is available to meet demand.

  20. Simple EOQ Model • Assumptions: 1. Demand is fixed at l units per unit time. 2. Shortages are not allowed. 3. Orders are received instantaneously. 4. Order quantity is fixed at Q per cycle. 5. Cost structure: a) Fixed and marginal order costs (K + cx) b) Holding cost at h per unit held per unittime.

  21. Inventory Levels for the EOQ Model

  22. Cost Equation for the EOQ Model

  23. The Average Annual Cost Function G(Q)

  24. The Average Annual Cost Function G(Q)

  25. The Optimal Q*

  26. Properties of the EOQ Solution

  27. Example • Desk production rate = 200 per month • Each desk needs 40 screws • Screws cost $0.03 • Fixed delivery charges are $100 per order • 25% interest rate for holding cost • What is the optimal order size?

  28. Example

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