Lec09 PDF
Lec09 PDF
Lec09 PDF
Deterministic Probabilistic
Model Model
Forecast of Demand
Aggregate Planning
Inventory Control
Operations Scheduling
Vehicle Routing 1
Demand Pattern in Inventory Model
Variation, V = (Standard deviation / Mean) x 100
1) Deterministic + constant (static) with time
Average monthly demand is approximately constant
and V is reasonably small (< 20%)
Assumptions
Single item
Demand is known and fixed (uniform)
Deterministic lead time (constant)
Uniform depletion of the inventory
The cost parameters, unit cost, holding cost,
and setup cost are known and fixed
Orders are placed so that stockouts or
shortages are avoided completely
Inventory Cycle
Reorder
Point, R
Time
Receive Place Receive Place Receive
order order order order order
Lead time
EOQ Model
Slope = 0 TCU
Holding Cost
Minimum
TCU
Setup Cost
14
Important Characteristics of the
EOQ Cost Function
hy * h 2 KD KDh
Annual holding cost
2 2 h 2
KD KD KDh
Annual setup cost *
y 2 KD 2
h
15
EOQ Model
OR EOQ h
When to order???
When the inventory reaches the reorder point: R = LeD
Le L nt 0
*
Effective Lead Time:
L L
n = (largest integer < * )= *
t0 t0
EOQ Model - Example
Neon lights on the U of A campus are replaced
at the rate of 100 units per day. The physical
plant orders the neon lights periodically. It costs
$100 to initiate a purchase order. A neon light
kept in storage is estimated to cost about $0.02
per day. The lead time is 12 days. Determine
the optimal inventory policy for ordering the
neon lights.
EOQ y
2*KD = 1000 units neon lights
h
* L
Cycle y = 10 days n= =1
t0
*
*
Length t0
D
Le L nt 0
*
Effective Lead Time = 12 – 1(10) = 2 days
Policy: Order 1000 units whenever inventory level drops to 200 units
EOQ Model - Example
D= 100 units per day K = $100 per order
h = $0.02 per unit per day L = 12 days
Example – Brewery
Example – Brewery
Inventory Level
Policy I
10 000
0 6 12 Time
Computation of EOQ
Example – Brewery
Inventory
Level Policy II
60 000
0 6 12Time
Computation of EOQ
Example – Brewery
Inventory
Level
120 000
Policy III
0 6 12Time
Computation of EOQ
Example – Brewery Policy I
Optimum order quantity