Professional Documents
Culture Documents
Management
Chapter 12
Operations As a Competitive
Weapon
Operations Strategy
Project Management Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout Supply Chain Strategy
Lean Systems Location
Inventory Management
Forecasting
Sales and Operations Planning
Resource Planning
Scheduling
280
Average cycle inventory = Q
2 = 2 = 140
drills
70 —
60 —
50 —
40 —
30 —
20 —
10 —
0—
10 20 30 40 50 60 70 80 90 100
© 2007 Pearson Education Percentage of items
Economic Order Quantity
Q Average
— cycle
2
inventory
1 cycle
Time
© 2007 Pearson Education
Total Annual
Cycle-Inventory Costs
Q = lot size; C = total annual cycle-inventory cost
H = holding cost per unit; D = annual demand
S = ordering or setup costs per lot
Annual cost (dollars)
Q D
Total cost = ( H) + ( S)
2 Q
Q
Holding cost = ( H)
2
D
Ordering cost = ( S)
Q
Q D 390 936
C= (H) + (S) = (15) + (45)
2 Q 2 390
Q == 390
D = 936 units; H = $15; S = $45; Q 468 units;
units; C
C == ?$3033
3000 —
Total cost
Annual cost (dollars)
2000 —
Holding cost
1000 —
Lowest Ordering cost
cost
| | | | | | | |
0 — 50 100 150 200 250 300 350 400
Current
© 2007 Pearson Best Q (EOQ)
Education Lot Size (Q) Q
Computing the EOQ
Example 12.3
Bird Feeders:
D = annual demand
2DS
EOQ = S = ordering or setup costs per lot
H
H = holding costs per unit
D = 936 units
2(936)45 = 74.94 or 75 units
H = $15 EOQ =
15
S = $45
Q D 75 936
C= (H) + (S) C= (15) + (45)
2 Q 2 75
C = $1,124.10
© 2007 Pearson Education
Computing EOQ
using the Excel Solver
Q Q Q
OH OH OH
R
Order Order Order
placed placed placed
L L L Time
TBO TBO TBO
© 2007 Pearson Education
Determining Whether
to Place an Order
Example 12.4
Demand for chicken soup is always 25 cases a day and
lead time is always 4 days. Chicken soup was just
restocked, leaving an on-hand inventory of 10 cases. No
backorders currently exist. There is an open order for
200 cases. What is the inventory position? Should a
new order be placed?
R = Average demand during lead time
= (25)(4) = 100 cases IP = Inventory Position
OH = On-hand Inventory
IP = OH + SR – BO SR = Scheduled receipts
= 10 + 200 – 0 = 210 cases BO = Back ordered
received
Q
Q Q
OH
R
Order Order Order
placed placed placed
L1 L2 L3 Time
TBO1 TBO2 TBO3
© 2007 Pearson Education
Choosing an Appropriate
Service-Level Policy
Service level (Cycle-service level): The desired
probability of not running out of stock in any one
ordering cycle, which begins at the time an order is
placed and ends when it arrives.
Protection interval: The period over which safety
stock must protect the user from running out.
Safety stock = zL
z= The number of standard deviations needed for a
given cycle-service level.
Probability of stockout
(1.0 – 0.85 = 0.15)
Average
demand
during
lead time R
z L
+ + =
75 75 75
Demand for week 1 Demand for week 2 Demand for week 3
t = 26
225
© 2007 Pearson Education Demand for 3-week lead time
Finding Safety Stock and R
Example 12.6
Suppose that the average demand for bird feeders is 18 units per
week with a standard deviation of 5 units. The lead time is
constant at 2 weeks. Determine the safety stock and reorder point
for a 90 percent cycle-service level. What is the total cost of the Q
system? (t = 1 week; d = 18 units per week; L = 2 weeks)
Demand distribution for lead time must be developed:
L = t L =5 2 = 7.1
Q3
Q1
OH Q2 OH
IP1
IP3
Order Order
placed placed
IP2
L L L Time
P P
Protection interval
© 2007 Pearson Education
Determining How Much
to Order in a P system
Example 12.7:
A distribution center has a backorder for five 36” color TV
sets. No inventory is currently on hand, and now is the time
to review. How many should be reordered to achieve an
inventory level of T = 400 if there are no scheduled receipts?
IP = OH + SR – BO T = 400
IP = 0 + 0 – 5 = –5 sets BO =5
OH =0
SR =0
Qt = T – IPt
Q = 400 – (–5) = 405 sets
© 2007 Pearson Education
Application 12.6
C = 4(18 936
($15) +
4(1
) + 28($15)
($45)
2 8)
= $540 00 +$585.00 + $420.00
= During
The Demand $1,545.00
the Protection Interval Simulator in OM Explorer
can be used to develop the demand distribution for P systems when
both demand and lead times are uncertain.
© 2007 Pearson Education
Demand During the Protection
Interval Probability Distribution
for a P System
108
Total 500
Q Systems
Review frequencies can be tailored to each item
Possible quantity discounts
Lower, less-expensive safety stocks
© 2007 Pearson Education
Visual Systems