Corner Point Property: An Optimal Solution Must Lie (consists Of) at one or More Corner Points

Corner Point Property:  An optimal solution must lie (consists of) at one or more corner points.[pic 1]

Fixed Order Qty Model: An order of a fixed quantity Q is placed every time the inventory falls below a reorder point R. (Use EOQ)

Fixed Time Period Model: An order quantity q that usually depends on the current inventory on hand is ordered. Orders can only be placed at certain times.

If order size is small every time -> low holding cost, but high ordering costs

If order size is large every time -> high holding cost, but low ordering costs[pic 2]

D: annual demand rate

Q: quantity to be ordered

S: set up cost or average cost of processing/placing an order

C: cost per unit

H: annual holding and storage cost per unit of
average inventory

i: the percent carrying cost (H=iC)                                           ([pic 3][pic 4][pic 5]

d = (daily) demand rate

L = Lead time (expressed in days)

To reduce EOQ inv, reduce the set-up cost & re-evaluate sources of fixed costs, and find ways to reduce, spread-out, or eliminate these costs[pic 6]

[pic 7]

Mean demand during the lead time: μL = μd × L; (Uncertainty = safety stock required)[pic 8]

Std. dev. of demand during lead time: σL = σd √L; Average Inventory = Q/2 + SS

Cost of over-stocking or overage (Co)

Cost of under-stocking or underage (Cu)

σ(L+P) = σd * √(L+P)

 [pic 9][pic 10]

[pic 11][pic 12]

[pic 13]

[pic 14]

Weighted moving average:

[pic 15]

Exponential Smoothing:

Ft = Ft-1 + α(At-1 - Ft-1)

Ft = αAt-1 + (1- α)Ft-1