Lecture8ch.

9
onsdagden9.november2016 12.42

Chapter9reorderpoint,LotsizeModels:TheContinuousReview
case.

SCIPS
Session8

Introduction to Inventory Management and Production Planning

and Scheduling Stochastic Inventory Management: Point Lot Models
Review 31 _ October 2016
utline Point Lot Assumptions Nota Model Development Solution
Algorithm ple
Wewilldiscussthesetypeofmodel:reorderpoint,lotsizemodel.
Thebesttimetoplaceanordercandependontwofactors:
1. Weshouldknowtheinventoryonhand,onorder,andthe
numberofoutstandingbackorders.
2. Second,wehavetoknowwhenthelastdemandoccurred.
Reorderpointisdenotedbyr.
Wewanttodevelopmodelsbasedonthe(Q,r)operatingpolicythat
canbeusedtofindthepolicyparametervaluesthatminimizeaverage
annualoperatingcosts.
The(Q,r)modelisanapproximationandbasedonmanyassumptions.

umptions and Notation Single single is a statiy revim the. mr
at of and are to K VMiabIe CA h a unit of fm a a sin* outstanding
at in time p&nt mr the r Sot Q than cutstanding
Sowewanttofindtheoptimalpolicyparameters,Q*andr*.Wewill
findthembyminimizingtheaverageannualcosts.
Order placed Inventory position Net inventory Time Order received

Hereweseewedonotalwayshavethesamequantityasordering.
Beforewealwaysorderedthesame,butnowwealsohavetoconsider
fixedorderingcosts.
r=reorderingpoint.
otatlons s = Safety = Ordering COSt K h = Holding in period t = Isn'tthisgraphmorerealistictotherealworld?
Average annual demand rate = BukMdering C = Unit variable cost T
= Length of the













erminology and Statements Cycle = Time of tm Mde at of a cle
if x > No overshooting Of the point r













xpected Demand and Backorders Demand Or t.me denoted by x
with xf x & with f x being the density function for demand
reorder IQd Average number Of orders placed per and related
COStS












xpected Inventory Holding Costs Enet inventory = Eonhand
Ebackordets Expected backorders assumed to be near to zero s +

Q the The safety Stock s giV6 the expected net inventory just of
Averageannualcostofcarryinginventory:
Netinventory=onhandinventorybackorders.











verage Inventory During Cycle 21s Q + s and safety stock s =















verage Annual Variable Costs Q the of upted backorders.














inding the Optimal Values Q at =
9.1.3FindingQ*andr*.Findingtheoptimalvalues.
Sohereweseetheconditionsthattheoptimallotsizeandreorder
pointvaluesmustsatisfy.


olution Algorithm Step I : Set = n = I Step 2: Find that satisfies =
Step 3 : U Sing , c O mp Q, Step 4: If e, stt. Otherwise, set n n
+1 go to Q while r wh"e
AlgorithmforFindingQ*andr*.
Step1:FirstwecanusetheEOQ,togetthefirstorderquantity.
Step2:Thenwewillfindthereoderpoint,andweusetheEOQthatwe
foundfromstep1.
Step3:NowwefindtheoptimalQ.
Step4:Andiftheyarecloseenoughtogether,thenwecandefineit.If
theyarenotcloseenough,westartoverwithiteration.