Inventory Control Models. Ch 4 (Known Demands) R. R. Lindeke IE 3265, Production And Operations Management. Reasons for Holding Inventories. Economies of Scale Uncertainty in delivery lead-times Speculation. Changing Costs Over Time Smoothing: to account for seasonality and/or Bottlenecks
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Ch 4 (Known Demands)
R. R. Lindeke
IE 3265, Production And Operations Management
Here these holding issues total: 24%
Includes both fixed and variable components
slope = c
KC(x) = K + cx for x > 0; 0 for x = 0.
1. Demand is fixed at l units per unit time – typically assumed at an annual rate (use care).
2. Shortages are not allowed.
3. Orders are received instantaneously. (this will be relaxed later).
4. Order quantity is fixed at a value “Q” per cycle. (we will find this as an optimal value)
5. Cost structure:
a) includes fixed and marginal order costs (K + cx)
b) includes holding cost at h per unit held per unit time.
Then, In your teams: Compute Pr. 10, pg 201
Let G(Q) be the average annual holding and set-up cost function given by
and let G* be the optimal average annual cost. Then it can be shown that:
Engineering Teams: (You can) Do It
Order 674 at a time!
Lowest cost – purchase 1783 about every 2 years!
Lets jump back into our teams and do some!
TRY 22b and 23 on Pg 211
Given: 20 days/month and 12 month/year; $85/hr for setup