03 - Lot Sizing for Individual Items with Time-

Varying Demand
1. A sale of polarizing filters is held twice annually by a photographic products distributor. The
demand pattern for a particular size of filter for the past year is as follows:

It is anticipated that demand for the next year will follow this pattern; hence, these figures are
being used as the “best estimates” of forthcoming sales. Demand will also continue in future years.
The cost of these filters is $8.65, ordering costs are approximately $35, and the carrying cost is
0.24 $/$/year. Calculate the squared coefficient of variation and select the appropriate order
quantities.

2. The demand pattern for another type of filter is

These filters cost the company $4.75 each; ordering and carrying costs are as in Problem 1. The
squared coefficient of variation equals 0.33. Use the Silver–Meal heuristic to determine the sizes
and timing of replenishments of stock.

3. For the following item having zero inventory at the beginning of period 1,
a. develop the magnitude of the first replenishment only using the LUC method.
Item characteristics:
A = $50 v = $2/unit r = 0.05 $/$/period

b. A marked difference between this method and that of Silver–Meal exists in the
dependence on D(1). Briefly discuss. In particular, suppose D(1) was much larger than any
of the other D(j)’s. What effect would this have on the best T for i. Silver–Meal? ii. LUC?

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4. Consider an item with the following properties:
A = $20 v = $2/unit r = 0.24 $/$/year
At time 0, the inventory has dropped to zero and a replenishment (with negligible lead
time) must be made. The demand pattern for the next 12 months is

All the requirements of each month must be available at the beginning of the month.
Replenishments are restricted to the beginnings of the months. No shortages are allowed. Using
each of the following methods, develop the pattern of replenishments to cover the 12 months
and the associated total costs of each pattern (do not bother to count the costs of carrying D(j)
during its period of consumption, namely, period j). In each case, the size of the last replenishment
should be selected to end month 12 with no inventory.

a. Fixed EOQ (rounded to the nearest integer number of months of supply, i.e., each time the
EOQ, based on the average demand through the entire 12 months, is adjusted so that it will
last for exactly an integer number of months).
b. A fixed time supply (an integer number of periods) based on the EOQ expressed as a time
supply, using the average demand rate for the 12 months.
c. On each replenishment, the selection of Q (or, equivalently, the integer T), which minimizes
the costs per unit of quantity ordered to cover demand through T.
d. The Silver–Meal heuristic.
e. One replenishment at the start of month 1 to cover all the requirements to the end of
month 12.
f. A replenishment at the beginning of every month.

Hint: For each case, it would be helpful to develop a table with at least the following columns: (1)
Month, (2) Replenishment Quantity, (3) Starting Inventory, (4) Demand, and (5) Ending Inventory.

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

a. Construct a replenishment schedule and calculate the associated costs using the fixed EOQ
method.
b. Repeat using the Wagner–Whitin algorithm.
c. Repeat using the Silver–Meal heuristic.
d. Repeat using the LUC method.
e. Repeat using the PPB method.
f. Repeat using the POQ method.

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