Ch14 Inventory13
Ch14 Inventory13
Ch14 Inventory13
Inventory Control
Inventory
Ordering costs
Shortage costs
Classifying Inventory Models
Number
of units
on hand Q Q Q
R
L L
Time
R = Reorder point
Q = Economic order quantity
L = Lead time
Cost Minimization Goal
C
O Total Cost
S
T Holding
Costs
Annual Cost of
Items (DC)
Ordering Costs
QOPT
Order Quantity (Q)
Basic Fixed-Order Quantity Model
Annual Annual Annual
Total Annual Cost = Purchase + Ordering + Holding
Cost Cost Cost
TC Total annual cost
D Demand
C Cost per unit
D Q Q Order quantity
TC = DC + S + H S Cost of placing an order
Q 2
or setup cost
R Reorder point
L Lead time
H Annual holding and storage cost
per unit of inventory
Deriving the EOQ
_
R eorder p oint, R = d L
_
d = average daily demand (constant)
L = Lead time (constant)
In-Class Exercise
16
Solution
2D S 2(10,000 )(10)
Q O PT = = = 365.148 un its, or 366 u n its
H 1.50
26
PRICE – BREAK MODEL
D Q
TC = DC + S + ic
Q 2
2DS
Q=
H
SOLUTIONS