OM 300 1st Edition Lecture 27 Outline of Last Lecture I Inventory Management II Types of Inventory III ABC Analysis IV Cycle Counting V Inventory Costs Outline of Current Lecture I EOQ Model II Minimizing Costs III Reorder Points Current Lecture Inventory Models for Independent Demand Need to determine when and how much to order o Basic EOQ economic order quantity o Production order quantity o Quantity discount model Basic EOQ Model Important Assumptions 1 Demand is known constant and independent 2 Lead time is known and constant 3 Receipt of inventory is instantaneous and complete 4 Quantity discounts are not possible 5 Only variable costs are setup and holding 6 Stockouts can be completely avoided Minimizing Costs FIRST QUESTION ON FINAL IS FROM THIS By minimizing the sum of setup or ordering and holding costs total costs are minimized Optimal order size Q will minimize total cost A reduction in either cost reduces the total cost Optimal order quantity occurs when holding cost and setup cost are equal These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Robust Model The EOQ model is robust It works even if all parameters and assumptions are not met The total cost curve is relatively flat in the are of the EOQ
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