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Title: quantitative methods of business decisions chapter 13(inventory modeling)
Description: quantitative methods of business decisions chapter 13

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School of Business
Department of Management Information Systems
BMIS355: Quantitative Methods of Business Decisions
Chapter 13 |

Inventory Modeling
Spring 2020 - 2021
BMIS355- CHAPTER 13

Outline
1
...


2
...


How much to order?

❖ Determine the size of the order at replenishment time
...


When to order?

❖ Periodic reviews: order at the start of a time period (week/month)
...


BMIS355- CHAPTER 13

Classical EOQ Model
Classical Economic Order Quantity (EOQ) Model:
The simplest of the inventory models
...


Stock is depleted uniformly at a constant demand rate, D
...
K = Setup cost associated with the placement of an order (dollars per order)
...

Expenses incurred on transportation of purchased orders
...

Cost of stationary, typing, postage, telephone charges etc
...
h = Holding cost (dollars per inventory unit per unit time)
...

◦ Storage and handling of material
...

BMIS355- CHAPTER 13

Classical EOQ Model
Computations:

The total cost per unit time:

❑ TCU(y) = Setup cost per unit time + Holding cost per unit time
❑ TCU(y) =

𝐾
𝑦
ൗ𝐷

𝑦
2

+ ℎ( )

BMIS355- CHAPTER 13

Classical EOQ Model
Where the optimal order quantity is:



𝒚 =

2𝐾𝐷


A positive lead time “L”, occurs between the placement and receipt of an order
...
The physical
plant orders the neon lights periodically
...
A neon
light kept in storage is estimated to cost about $
...
The lead time between placing
and receiving an order is 12 days
...


From the data of the problem, we have:





D = 100 units per day
K = $100 per order
h = $
...
02
BMIS355- CHAPTER 13

= 1000 neon lights

Classical EOQ Model
◦ The associated cycle length is:
• t0 = y/D = 1000/100 = 10 days

◦ Since the lead time L (= 12 days) > t0 (=10 days), then we must compute the effective lead time Le
...
2) = 1

• Le = L - n t0 = 12 – 1 X 10 = 2 days
◦ Reorder point :

Place a new order whenever inventory drops to 200 units

• LeD = 2 X 100 = 200 neon lights
...
02

1000
2

BMIS355- CHAPTER 13

= $20 per day

Outline
1
...


2
Title: quantitative methods of business decisions chapter 13(inventory modeling)
Description: quantitative methods of business decisions chapter 13