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Inventory Analysis

Deterministic Models

EOQ Model K = fixed charge for a single order h= holding cost ($/item/unit time) D = constant demand per unit time (unit) Q*= economic order quantity .

The EOQ Model with Non-zero Lead Time Lead Time Less than inventory Cycle Time C: the length of the inventory cycle L: the deterministic lead time R*: reorder point .

an order must be placed so that it arrives when an inventory is depleted .C = Q*/D • Each time the inventory level reach R*.

Lead Time Greater than inventory Cycle Time • The order must be placed in a previous inventory cycle in order to satisfy demand  at least one order will arrive during the lead time .

23) = 0.2) = F(1.23 • Reorder point: R* = (F(L/C)Q* .2 years L = 90 days F(L/C) = F((90/365)/0.• L/C represents the lead time in terms of a number of inventory cycles  fractional part = F(L/C) Example: C = 0.

At the same time the estimated costs of holding a yard of carpet in inventory for a year is $2. there is a fixed charge of $1. Every time the division places an order to the manufacturer.Example: • A department store carpet division sells 30.000 yards of carpet of of a particular type and color per year. How many yards of carpet should be ordered each time an order is placed? .000 independent of the size of the order.

Example: • The length of the inventory cycle was approximately 67 days and lead time was 30 days. the order must be placed when the inventory level reach how many yards . The order must be placed when the inventory level reach how many yards? • If the lead time was 75 days.

but the holding cost does change .The EOQ Model with A Uniform Replenishment Rate • Inventory is received gradually over a period of a time • Important for an organization that produces and inventories the same end item  EPQ / EMQ • Works only if items are being produced at a rate greater than the demand rate • The ordering cost is not affected.

p = uniform replenishment rate = production rate tp = the production time td = the time that inventory is being depleted and not replenished .

• • • • Total order cost per unit time = K(D/Q) Length of production run = Q/p Demand during production = (Q/p)D The inventory will be maximized precisely when production stops and when total production reaches the order quantity Q  maximum inventory level = Q-(Q/p)D .

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Economic order quantity: Total number of production runs (or orders) per year = D/Q The time during which the inventory is being depleted = Q/p – Q/d .

Example: year .

• EOQ? • Total annual inventory cost? • Total number of production runs (or orders) per year? • The length of production run? • The time during which the inventory is being depleted? • Maximum inventory level? .