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ISEN 315 Spring 2011 Dr. Gary Gaukler

ISEN 315 Spring 2011 Dr. Gary Gaukler. Review. Optimal (Q,R):. Solution Procedure . The optimal solution procedure requires iterating between the two equations for Q and R until convergence occurs (which is generally quite fast).

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ISEN 315 Spring 2011 Dr. Gary Gaukler

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  1. ISEN 315Spring 2011Dr. Gary Gaukler

  2. Review Optimal (Q,R):

  3. Solution Procedure • The optimal solution procedure requires iterating between the two equations for Q and R until convergence occurs (which is generally quite fast). • A cost effective approximation is to set Q=EOQ and find R from the second equation. • In this class, we will use the approximation.

  4. Solution Procedure • Exact procedure: • Approximation:

  5. Calculating n(R) and L(z)

  6. Example • Selling mustard jars • Jars cost $10, replenishment lead time 6 months • Holding cost 20% per year • Loss-of-goodwill cost $25 per jar • Order setup $50 • Lead time demand N(100, 25)

  7. Example

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