T A C annual ordering cost annual carrying cost TAC C D Q UC Q 2 0 i Economic Order Quantity E O Q minimizes total acquisition costs point at which holding and orders costs are equal How much to order Q EOQ 2DC 0 UC i 0 D Annual Demand C Ordering cost U Unit cost C Holding cost i N D Q I Q 2 N orders per year I average inventory level D annual demand Co order cost per order Q order quantity U unit cost Ci carrying cost per year Where Reorder Point minimum level of on hand inventory that triggers a replenishment When to order d t ROP d average demand per time period t average supply lead time Q 2 UD Discount Model D Q 0 UC i TAC C C Ordering cost D Annual demand Q Order quantity U Unit cost C Holding cost 0 i Q p 0 2 DC d 1 p C U i Production Order Quantity most economical order quantity when units become available at rate produced Service Level Policy determining the acceptable stock out risk level ss z ddlt ss Safety stock z standard deviations needed for service level ddlt standard deviation of demand during lead time ROP with Stochastic Demand 2
View Full Document