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    ISEN 315 Spring 2011 Dr. Gary Gaukler

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    Hassan Waheed
    This document discusses inventory control concepts including deterministic and stochastic inventory control, MRP, JIT, and supply chain management. It then covers relevant inventory costs like holding, ordering, and shortage costs. The economic order quantity (EOQ) model is introduced, including its assumptions and the cost equation. Properties of the optimal EOQ solution and examples applying the model to quantity discount situations are provided.

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    ISEN 315 Spring 2011 Dr. Gary Gaukler

    Uploaded by

    Hassan Waheed
    22 views29 pages
    This document discusses inventory control concepts including deterministic and stochastic inventory control, MRP, JIT, and supply chain management. It then covers relevant inventory costs like holding, ordering, and shortage costs. The economic order quantity (EOQ) model is introduced, including its assumptions and the cost equation. Properties of the optimal EOQ solution and examples applying the model to quantity discount situations are provided.

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    This document discusses inventory control concepts including deterministic and stochastic inventory control, MRP, JIT, and supply chain management. It then covers relevant inventory costs like holding, ordering, and shortage costs. The economic order quantity (EOQ) model is introduced, including its assumptions and the cost equation. Properties of the optimal EOQ solution and examples applying the model to quantity discount situations are provided.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    22 views29 pages

    ISEN 315 Spring 2011 Dr. Gary Gaukler

    Uploaded by

    Hassan Waheed
    This document discusses inventory control concepts including deterministic and stochastic inventory control, MRP, JIT, and supply chain management. It then covers relevant inventory costs like holding, ordering, and shortage costs. The economic order quantity (EOQ) model is introduced, including its assumptions and the cost equation. Properties of the optimal EOQ solution and examples applying the model to quantity discount situations are provided.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 29

    ISEN 315

    Spring 2011
    Dr. Gary Gaukler

    Inventory Control

    Deterministic inventory control


    Stochastic inventory control
    MRP / Lot sizing / JIT
    Supply chain management

    Reasons for Holding Inventories

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

    Relevant Costs (continued)


    Ordering Cost (or Production Cost).
    Can include both fixed and variable components.

    slope = c
    K

    Relevant Costs (continued)


    Penalty or Shortage Costs. All costs that
    accrue when insufficient stock is available to
    meet demand.

    Simple EOQ Model

    Assumptions:
    1. Demand is fixed at 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 unit time.

    Inventory Levels for the EOQ Model

    Cost Equation for the EOQ Model

    The Average Annual Cost Function G(Q)

    The Average Annual Cost Function G(Q)

    Properties of the EOQ Solution

    2K
    Q
    h

    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?

    Example

    EOQ Cost Function

    Quantity Discount Models

    All Units Discounts: the discount is


    applied to ALL of the units in the order.
    Incremental Discounts: the discount is
    applied only to the number of units
    above the breakpoint.

    All-Units Discount Order Cost Function

    Incremental Discount Order Cost Function

    All-unit Discount

    Compute EOQs for all discounts


    Find realizable EOQ values
    Compare cost of realizable EOQ with cost
    at breakpoints

    All-Units Discount Average Annual Cost

    All-unit Discount Optimality

    Incremental Discount
    Cost structure:

    Incremental Discount

    Establish C(Q) curve


    Determine cost per unit C(Q)/Q
    Substitute C(Q)/Q into G(Q)
    Compute G(Q) for each range
    Pick feasible solution with lowest cost

    Average Annual Cost Function


    for Incremental Discount Schedule

    Incremental Discount Example


    Demand 600 bags / year
    Setup cost for ordering: $8
    Unit cost
    Up to 500: $0.30
    Up to 1000: first 500 at $0.30, remaining at $0.29
    Over 1000: first 500 at $0.30, next 500 at $0.29,
    remaining at $0.28

    Holding cost: 20%

    Incremental Discount Example

    Incremental Discount Example

    Incremental Discount Example

    Properties of the Optimal Solutions


    For all units discounts, the optimal will occur at
    the bottom of one of the cost curves or at a
    breakpoint. One compares the cost at the
    largest realizable EOQ and all of the breakpoints
    succeeding it.
    For incremental discounts, the optimal will
    always occur at a realizable EOQ value.
    Compare costs at all realizable EOQs.

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