2 Economic order quantity (EOQ) model—An inventory-control technique that minimizes the total of ordering and holding costs: QV Se : Demand D ted io N= Expected number of orders. = Order quantity’ -O* , Expected time between orders.= 7 => W / Total annual cost = Setup (order) cost + Holding cost D. 2 1C= 58+ 5H Number of working days per year (12-1). (12-2) (02-3) (12-4) ~ 2-5)Bead time—In purchasing systems, the time between placing an order and receiv- ing it; in production systems, the wi wait, move, queue, setup, and ran times for each component produced, *- # Reorder point (ROP)—The i inventory level el point) ai which aciion is ken to replenish the stocked item. °- ROP for known demand: . . ROP = (Demand per day) x (Lead time for a new order in days) = d XL (12-6) aSafety stock——Extra stock to allow for uneven demand; a buffer. 4 Production order quantity model—An economic order quantity technique applied to production orders: 2DS FV ai iil wen = 208 (12-8) Pe HU Anitual production rate ® Quantity discount—A reduced price for items purchased in large quantities: D2 To> oe + BH + PD (12-9) 2D, Q* (12-10)‘Probabilistic medel—A statistical model applicable when product demand é¢ any > other Variable is not known but can be specified by mearis of a probability distribution, Service level—The complement of the probability of a stockout. ROP for unknown demand: - : aed Rop'= aX L495 pens “at » [Annual stockout costs = The Sum of the init Showt for ewchi desnand level © The probability of that demand level x The stockout cost/unit <3 (12-12) % The number of orders per yea inst ROP for unknown demand and given service level: 7 ROP = Expected demand during lead time + Zoaer (213) * Safety stock =: Zoaur oo aa-l4 ROP. for variable demand and constint lead time: : CROP = (Average daily demand * Lead time in das) 4 Logie ws ROP for constant demand und variable lead time: * ROP = (Daily demand X Average lead time in days) + Z(Daily dan out (218) ROP for variable demand and variable lead times". oe “ROP = (Avetage daily denisind % Aveinge lead ine) # Zager. 02-17) mench case, oang = (Average lead time X 07) + ote : |. but under constant demand: 63 = 0,9. . f and while under constant lead time: of, = 0: ee