School of Industrial Engineering & Management (IEM) Inventory Management

International University, VNU-HCM Instructor: Dr. Nguyen Van Hop

Trần Thị Thanh Ngân – IELSIU18223

Homework 3
Problem 1: problem 6.2 page 224 Silver et.al. (1998) book
The demand pattern for another type of filter is:
Jan Feb Mar Apr May June
18 31 23 95 29 37
July Aug Sept Oct Now Dec
50 39 30 88 22 36
These filters cost the company $4.75 each; ordering and carrying costs are as in Problem 6.1.
The variability coefficient equals 0.33. Use the Silver-Meal heuristic to determine the sizes
and timing of replenishments of stock.

Solution:
We have: c = $4.75
A = $35
r = 0.24 $/$/year = 0.02 $/$/month
Ch = 0.02 × 4.75 = $0.095 /unit/month
Z1,1 = A + c × D1 = 35 + 4.75 × 18 = 120.5
Z1,2 = (A + c(D1 + D2) + Ch × D2)/2 = (35 + 4.75(18 + 31) + 0.095 × 31)/2 = 135.3475 >
120.5
 So the heuristic sets Q1 = 18.
Next:
Z2,2 = A + c × D2 = 35 + 4.75 × 31 = 182.25
Z2,3 = (A + c(D2 + D3) + Ch × D3)/2 = (35 + 4.75(31 + 23) + 0.095 × 23)/2 = 146.8425 <
182.25
Z2,4 = (A + c(D2 + D3 + D4) + 2Ch × D3 + Ch × D4)/3 = (35 + 4.75(31 + 23) + 0.095 × 23)/2 =
254.3283 > 146.8425
 So the heuristic sets Q2 = 54.
Same as above, we also have:
Z4,4 = 486.25
Z4,5 = 313.3775 < 486.250
Z4,6 = 269.8450 < 313.3775
Z4,7 = 265.3213 < 269.8450
Z4,8 = 252.2710 < 265.3213
Z4,9 = 236.3508 < 252.2710
Z4,10 = 269.4664 > 236.3508
 So the heuristic sets Q4 = 280.
Next:
Z10,10 = 453.00
Z10,11 = 279.7950 < 453.00
Z10,12 = 245.8100 < 279.7950
 So the heuristic sets Q10 = 146.
Conclusion: - Ordering 18 patterns on January
- Ordering 54 patterns on February
- Ordering 280 patterns on April
- Ordering 146 patterns on October

1
Problem 2: problem 6.10 page 226 Silver et.al. (1998) book

Consider a company facing a demand pattern and costs as follows:

Month Sequential Number Requirements
(Units)
January 1 20
February 2 40
March 3 110
April 4 120
May 5 60
June 6 30
July 7 20
August 8 30
September 9 80
October 10 120
November 11 130
December 12 40
Total 800

A = $25.00
r (per month) = $0.05 (carrying costs are very high in this industry)
v = $4.00
Using a “three-month” decision rule, the replenishment schedule and associated costs are as
follows:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 150 110 0 90 30 0 110 80 0 170 40
Replenishment 170 0 0 210 0 0 130 0 0 290 0 0 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 150 110 0 90 30 0 110 80 0 170 40 0 780

Total replenishment costs $100.00

Total carrying costs $156.00
Total replenishment + carrying $256.00
a. Construct a replenishment schedule and calculate the associated costs using the Fixed
Economic Order Quantity method.
b. Repeat using the Wagner-Whitin Algorithm.
c. Repeat using the Silver-Meal Heuristic.
d. Repeat using the Least Unit Cost method.
e. Repeat using the Part-Period Balancing method.
f. Repeat using the Periodic Order Quantity method.

Solution:
We have: At = $25
r = $0.05
v = $4
 H = 0.05×4 = $0.2
a. The Fixed Economic Order Quantity method
We get:
The average of the demand is: D = 67 unit per month

2
 2 AD 2 ×25 × 67
 EOQ =
√ H
=
√ 0.2
= 129.42 = 130 unit

Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 150 110 0 0 80 50 30 0 0 0 0
Replenishment 170 0 0 120 140 0 0 0 80 120 130 40 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 150 110 0 0 80 50 30 0 0 0 0 0 420

Total replenishment cost: 25×7 = $175

Total carrying costs: 420×0.2 = 84
Total: 175 + 84 = $259
b. The Wagner-Whitin Algorithm

Last period Planning Horizon(t)

with
ordering 1 2 3 4 5 6 7 8 9 10 11 12
1 25 33 77
2 50 72
3 58 82 106
4 83 95 107 119 143
5 107 113 121 139
6 120 124 136 184
7 132 138 170
8 144 160 208
9 161 185 237
10 185 211
11 210 218
12 235
zt 25 33 58 82 95 107 119 136 160 185 210 218
jt 1 1 3 3 4 4 4 6 8 9, 10 11 11

So we have:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 150 110 0 0 80 50 30 0 0 0 0
Replenishment 170 0 0 120 140 0 0 0 80 120 130 40 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 150 110 0 0 80 50 30 0 0 0 0 0 420
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 40 0 0 110 50 20 0 80 0 0 40
Replenishment 60 0 110 230 0 0 0 110 0 120 170 0 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 40 0 0 110 50 20 0 80 0 0 40 0 340

Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 150 110 0 0 80 50 30 0 0 0 0
Replenishment 170 0 0 120 140 0 0 0 80 120 130 40 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800

3
Ending Inventory 150 110 0 0 80 50 30 0 0 0 0 0 420
Total replenishment cost: 25×6 = $150
Total carrying costs: 340×0.2 = 68
Total: 150 + 68 = $218
c. The Silver-Meal Heuristic
Z1,1 = A + c × D1 = 25 + 4 × 20 = 105
Z1,2 = (A + c(D1 + D2) + Ch × D2)/2 = (25 + 4(20 + 40) + 0.2 × 40)/2 = 136.5 > 105
 So the heuristic sets Q1 = 20.
Next:
Z2,2 = A + c × D2 = 25 + 4 × 40 = 185
Z2,3 = (A + c(D2 + D3) + Ch × D3)/2 = (25 + 4(40 + 110) + 0.2 × 110)/2 = 323.5 > 185
 So the heuristic sets Q2 = 40.
Same as above, we also have:
Z3,3 = 465
Z3,4 = 484.5 > 465
 So the heuristic sets Q3 = 110.
Next:
Z4,4 = 505
Z4,5 = 378.50 < 505
Z4,6 = 296.33 < 378.50
Z4,7 = 245.25 < 296.33
Z4,8 = 225.00 < 245.25
Z4,9 = 254.17 > 225.00
 So the heuristic sets Q4 = 260.
Next:
Z9,9 = 345
Z9,10 = 424.50 > 345.00
 So the heuristic sets Q9 = 80
Next:
Z10,10 = 505
Z10,11 = 525.50 > 505.00
 So the heuristic sets Q10 = 120
Next:
Z11,11 = 545
Z11,12 = 356.50 < 545.00
 So the heuristic sets Q11 = 170
So we have:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 0 0 0 140 80 50 30 0 0 0 40
Replenishment 20 40 110 260 0 0 0 0 80 120 170 0 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 0 0 0 140 80 50 30 0 0 0 40 0 340

Total replenishment cost: 25×7 = $175

Total carrying costs: 340×0.2 = 68
Total: 175 + 68 = $243

d. The Least Unit Cost method

4
 Carrying Ordering Total Total cost
T Demand cost costs cost Lot size per unit
1 20 0 25 25 20 1.2500
2 40 8 25 33 60 0.5500
3 110 52 25 77 170 0.4529
4 120 124 25 149 290 0.5138
5 60 172 25 197 350 0.5629
4 120 0 25 25 120 0.2083
5 60 12 25 37 180 0.2056
6 30 24 25 49 210 0.2333
7 20 36 25 61 230 0.2652
6 30 0 25 25 30 0.8333
7 20 4 25 29 50 0.5800
8 30 16 25 41 80 0.5125
9 80 64 25 89 160 0.5563
10 120 160 25 185 280 0.6607
9 80 0 25 25 80 0.3125
10 120 24 25 49 200 0.2450
11 130 76 25 101 330 0.3061
12 40 100 25 125 370 0.3378
11 130 0 25 25 130 0.1923
12 40 8 25 33 170 0.1941

So we will order with:

- Q1 = 170
- Q4 = 180
- Q6 = 80
- Q9 = 200
- Q11 = 130
- Q12 = 40
Then, we have the result:

Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 150 110 0 60 0 50 30 0 120 0 0
Replenishment 170 0 0 180 0 80 0 0 200 0 130 40 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 150 110 0 60 0 50 30 0 120 0 0 0 520
Total replenishment cost: 25×6 = $150
Total carrying costs: 520×0.2 = $104
Total: 150 + 104 = $254
e. The Part-Period Balancing method

T Demand Carrying cost

1 20 0
2 40 8 < 25 (closer)
3 110 52 > 25
3 110 0
4 120 24 < 25 (closer)

5
 5 60 48 > 25
5 60 0
6 30 6 < 25
7 20 14 < 25
8 30 32 > 25 (closer)
9 80 0
10 120 24 < 25 (closer)
11 130 76 > 25
11 130 0
12 40 8

So we will order with:

- Q1 = 60
- Q3 = 230
- Q5 = 110
- Q8 = 200
- Q10 = 120
- Q11 = 170
Then, we get the results:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 40 0 120 0 80 50 30 0 120 0 40
Replenishment 60 0 230 0 140 0 0 0 200 0 170 0 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 40 0 120 0 80 50 30 0 120 0 40 0 480

Total replenishment cost: 25×5 = $125

Total carrying costs: 480×0.2 = $96
Total: 125 + 96 = $221
f. The Periodic Order Quantity method
2A 2× 25
We have: T =
So we get:
√
DH
=
√
67 × 0.2
= 1.932 = 2

Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 40 0 120 0 30 0 30 0 120 0 40
Replenishment 60 0 230 0 90 0 50 0 200 0 170 0 800
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending Inventory 40 0 120 0 30 0 30 0 120 0 40 0 380

Total replenishment cost: 25×6 = $150

Total carrying costs: 380×0.2 = $76
Total: 150 + 76 = $226

Problem3: solve problem 6.17 page 189 Silver et.al. (1998) book by dynamic programming
approach

Solution:
Holding cost: h = r×v = 1.05×65 = $68.25
Let z1* = 0

6
Node 2:
c1,2 = A + C×D1 = 50 + 65×350 = $22,800
z ¿2 = $22,800 → p ¿2=1

Node 3:
c1,3 = $49,450
c 2,3 =$ 13,050
z ¿3=min ( z ¿1 +c 1,3 ; z ¿2 +c 2,3 ) =min ( 49,450 ; 35,850 )=$ 35,850 → p ¿3=2

Node 4:
c 1,4 =A +C∗( D 1 + D 2 + D 3 ) +h∗(D 2+2 D 3 )=$ 49,450
c 2,4 =A +C∗( D2 + D3 ) + h∗D3=$ 13,050
c 3,4 =A +C∗D 3=$ 50
z 4 =min ( z ¿1+ c1,4 ; z ¿2 +c 2,4 ; z ¿3+ c 3,4 )=min ( 49,450 ; 35,850; 35,900 ) =$ 35,850
¿

→ p ¿4=2

Node 5:
c 1,5= A +C∗( D1 + D 2 + D 3+ D 4 ) + h∗(D 2+ 2 D 3 +3 D 4 )=$ 89912.5
c 2,5 =A +C∗( D2 + D3 + D4 ) + h∗( D3 +2 D 4 )=$ 43,275
c 3,5= A +C∗( D3 + D 4 ) + h∗D 4=$ 20,037.5
c 4,5 =A +C∗D4 =$ 9,800
z 5=min ( z ¿1 +c 1,5 ; z ¿2 +c 2,5 ; z ¿3+ c 3,5 ; z ¿4 + c 4,5 )
¿

¿ min ( 87662.5 ; 66,975 ;55,887.5 ; 45,650 )=$ 45,650

→ p ¿5=4

Node 6:
c 1,6 =$ 258,912.5
c 2,6 =$ 178,150
c 3,6 =$ 120,787.5
c 4,6 =$ 76,425
c 5,6 =$ 32,550
z ¿1+ c1,6 =$ 258,912.5

{
z ¿2+ c2,6 =$ 200,950
z 6=min z3¿ + c3,6 =$ 156,637.5 =$ 78,200→ p¿6=5
z¿4 +c 4,6 =$ 112,275
z5¿ + c5,6 =$ 78,200

Node 7:
c 1,7 =$ 502,662.5
c 2,7 =$ 380,950
c 3,7 =$ 282,637.5
c 4,7 =$ 197,325
c 5,7 =$ 112,500
c 6,7 =$ 39,050

7
 z ¿1+ c1,7 =$ 502,662.5

Node 8:
{ z ¿2 +c 2,7 =$ 403,750
¿
z ¿7=min z3 +¿
c3,7 =$ 318,487.5 =$ 117,250 → p¿ =6
z 4 + c 4,7=$ 233,175
¿
z5 + c5,7 =$ 158,150
¿
z 6+ c 6,7=$ 117,250

c 1,8=$ 716,187.5
7

c 2,8 =$ 563,762.5
c 3,8=$ 434,737.5
c 4,8 =$ 318,712.5
c 5,8=$ 203,175
c 6,8 =$ 99,012.5
c 7,8=$ 29,300
z ¿1 +c 1,8=$ 716,187.5

{
z ¿2 +c 2,8=$ 586,562.5
z ¿3+ c 3,8=$ 470,587.5
z 8=min z¿4 +c 4,8 =$ 354,562.5 =$ 146,550 → p ¿8=7
¿

z ¿5+ c 5,8=$ 248,825

z ¿6 +c 6,8=$ 177,212.5
z ¿7 +c 7,8=$ 146,550
Node 9:
c 1,9=$ 906,150
c 2,9=$ 729,837.5
c 3,9=$ 576,925
c 4,9 =$ 437,012.5
c 5,9=$ 297,587.5
c 6,9=$ 169,537.5
c 7,9=$ 75,937.5
c 8,9 =$ 22,800
z ¿1 +c 1,9=$ 906,150

{
z ¿2 +c 2,9=$ 752,637.5
z ¿3 +c 3,9=$ 612,775
¿
z ¿9=min z 4¿ +c 4,9 =$ 472,862.5 =$ 169,350→ p¿9=8
z 5 +c 5,9=$ 343,237.5
z ¿6 +c 6,9 =$ 247,737.5
z ¿7 +c 7,9 =$ 193,187.5
z ¿8 +c 8,9 =$ 169,350

Node 10:
c 1,10=$ 1,028,350
c 2,10=$ 838,387.5

8
 c 3,10=$ 671,825
c 4,10 =$ 518,262.5
c 5,10=¿ $365,187.5
c 6,10=$ 223,487.5
c 7,10=$ 116,237.5
c 8,10=$ 49,450
c 9,10=$ 13,050
z1¿ + c1,10 =$ 1,028,350

{
z¿2 +c 2,10=$ 861,187.5
z¿3 + c3,10 =$ 707,675
z¿4 +c 4,10=$ 554,112.5
z ¿10=min z ¿5 +c 5,10=$ 410,837.5 =$ 182,400→ p ¿10=9
z¿6 + c6,10 =$ 301,687.5
z¿7 + c7,10 =$ 233,487.5
z¿8+ c 8,10=$ 196,000.
z ¿9 + c9,10 =$ 182,400
Node 11:
c 1,11 =$ 1,028,350
c 2,11 =$ 838,387.5
c 3,11 =$ 671,825
c 4,11 =$ 518,262.5
c 5,11 =¿ $365,187.5
c 6,11 =$ 223,487.5
c 7,11 =$ 116,237.5
c 8,11 =$ 49,450
c 9,11 =$ 13,050
c 10,11 =$ 50

z ¿1 +c 1,11 =$ 1,028,350

{
z ¿2+ c 2,11=$ 861,187.5
z ¿3 +c 3,11 =$ 707,675
z ¿4 + c 4,11=$ 554,112.5
¿
z ¿11=min z 5¿ + c 5,11=$ 410,837.5 =$ 182,400→ p¿11=9
z 6 +c 6,11 =$ 301,687.5
z ¿7 +c 7,11 =$ 233,487.5
z ¿8 +c 8,11 =$ 196,000
z ¿9 +c 9,11 =$ 182,400
z ¿10 +c 10,11=$ 182,450

Node 12
c 1,12=$ 1,140,475
c 2,12=$ 940,275
c 3,12=$ 763,475
c 4,12=$ 599,675
c 5,12=$ 436,362.5

9
 c 6,12=$ 284,425
c 7,12=$ 166,937.5
c 8,12=$ 59,200
c 9,12=$ 43,275
c 10,12=$ 20,037.5
c 11,12 =$ 13,050

z¿1 +c 1,12=$ 1,140,475

{
z ¿2 +c 2,12=$ 963,075
z ¿3 +c 3,12=$ 799,325
z ¿4 +c 4,12 =$ 635,525
z ¿5 +c 5,12=$ 482,012.5
¿ ¿
z 12=min z ¿6 +c 6,12=$ 362,625 =$ 195,450 → p12=11
z ¿7 +c 7,12=$ 284,187.5
z ¿8 +c 8,12=$ 205,750
z ¿9 +c 9,12=$ 212,625
z¿10 +c 10,12=$ 202,438
z ¿11 +c 11,12 =$ 195,450

Node 13
c 1,13=$ 1,303,625
c 2,13=$ 1,089,775
c 3,13=$ 899,325
c 4,13 =$ 721,875
c 5,13=$ 544,912.5
c 6,13=$ 379,325
c 7,13=$ 248,187.5
c 8,13=$ 157,512.5
c 9,13=$ 97,225
c 10,13=$ 60,337.5
c 11,13 =$ 36,450
c 12,13 =$ 13,050

10
 z ¿1 +c 1,13=$ 1,303,625

{
z¿2 +c 2,13=$ 1,112,575
z ¿3 +c 3,13=$ 935,175
z ¿4 +c 4,13=$ 757,725
z ¿5 +c 5,13=$ 590,562.5
¿
z ¿13=min z¿ 6+ c 6,13=$ 457,525 =$ 205,250→ p¿13=12
z 7 +c 7,13=$ 365,437.5
z ¿8 +c 8,13=$ 304,062.5
z ¿9 +c 9,13=$ 266,575
z ¿10 +c 10,13=$ 242,737.5
z ¿11 +c 11,13=$ 218,850
z ¿12 +c 12,13=$ 205,250

Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting Inventory 0 0 150 150 0 0 0 0 0 150 150 0
Replenishment 350 350 0 0 500 600 450 350 350 0 0 200 3150
Requirements 350 200 0 150 500 600 450 350 200 0 150 200 3150
Ending Inventory 0 150 150 0 0 0 0 0 150 150 0 0 600
So, we have:

11