Chase Strategy 1 2

8/3/2019 Chase Strategy 1 2

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Period 1 2 3 4 5 6

Demand 5000 6000 8000 9000 9000 11000

Unitho lding cost:$60/period

Ex 6

Regular

OT

SC

5000

-

-

Final Plan 5000 6000 8800 11200 6000 11000

6000

-

-

6000

1200

1600

6000

1200

4000

0

0

6000

6000

1200

3800End Inventory 0 0 800 3000 0 0

Regular

OT

SC

Holding

Total

5000*

0

0

0

5000

6000

0

0

0

6000

6000

1380**

2000+

48++

9428

6000

1380

5000

180

12560

0

0

7500

0

7500

6000

1380

4750

0

12130

Capacity Capacityin P5

Regular 6000 0

Overtime 1200 0

Sub-contract 4000 6000

5000 x $1000 = $5,000,000 **1200 x $1150 =$1,380,000

+1600 x$1250 = 2,000,000 ++800 x$60 =$48,000

1

Lead time LT Time between placing and receiving order.

On Hand Inventory OH Physical stock

Inventory Level IL IL =OH – Quantity on backorder

Inventory Position IP IP =IL +Quantity in transit

Let’s consider different situations

Given Calculate

OH =50, LT =0 IL, IP IL =50, IP =50( 50 - 0) (50+ 0)

IL =-20, LT =0 OH, IP

OH =100, LT =3 days. We ordered 75units yesterday from supplier .

IL, IP

IL =- 40, LT =5 days, 80 units orderedyesterday, 50units ordered 3days ago.

OH, IP

Definitions cont.

IP >=IL

OH=0,IP =-20(-20 +0)

IL =100 (100+ 0)

IP =175(100 +75)

OH =0

IP =90(- 40+80+50)

20

1 The EOQ Model – Economic Order Quantity

Objective: Todetermineorder quantity (lot size) tominimizeannual inventory cost.

Developed in 1915 by Harris. Very simple, robust.Used by thousands of companies around the world.

1 Annual demand is known, occurs atuniformrate.

D: [Q / T ].

2 Ordering costS is fixed for every order. S: [$ ]

3 Holding cost Hcharged on average inventory H: [$/ (Q*T) ]

4 LotsizeQ fixed, del ivered in onelot Q: [Q]

5 No shortages permitted. IL>=0

6 Lead-time (LT ) does not vary LT : [T ]

7 One item, no quantity discount is offered

C: Purchase priceper unit

Assumptions of basic EOQ Model

Frequencyof orderingversus holding

=12,000 units / year, S =$140, C =$15/unit

nnual holding cost: 24% of C: H =15*24%=$3.6per

Lotsize Q

#of orders

Orderingcost

Averageinventory

Holdingcost

AnnualIncost( A

D/Q S.(D/Q) Q/2 H.(Q/2) S.(D/Q).+

400

800

1200

1600

30.0

15.0

10.0

7.5

4200.0

2100.0

1400.0

1050.0

200.0

400.0

600.0

800.0

720.0

1440.0

2160.0

2880.0

49

35

35

39

Need faster methodto determineorder quanti

Smaller lot size means :

• morefrequentordering, higherorderingcost

• loweraverageinventory, lower holdingcost

FromEx.1.2:D =12000units/year, S=$140,H =3.6$/unit/year

Q0 = 966.1 Policy[0,1000]

Policy[0,1500]

2. At least750perlot?

Ex 1.3:Variationsof basicEO Qmodel( youcan’talwaysorderthe exactnumberyou want)

0

1 00 0

2 00 0

3 00 0

4 00 0

5 00 0

6 00 0

7 00 0

8 00 0

9 00 0

1 00 00

1

5

0

3

0

0

4

5

0

6

0

0

7

5

0

9

0

0

1

0

5

0

1

2

0

0

1

3

5

0

1

5

0

0

1

6

5

0

1

8

0

0

L o tS i z e ( Q )

A

n

n

u

a

l

C

o

s

t s

1. At least1500perlot?

Policy[0,1000]

3. Sold in boxes(150 per box).

50,300,450,600,750, 900,1050,1200,…

900, 966.1, 1050,

AIC(900)=3486.67

AIC(1050)=3490 Policy[0,900]

3

Ex. 1.4 – cont.

D=12000 units / year

Policy: [0, 1000]

LT =1! months

Q*

I n v e n t o r y

Policy: [1500, 1000]

Order when IP =demand during lead time =D *LT

D* LT = *1! [months] =1500units12000 [units / year]12[months /year]

LT =3 months ?

D* LT =3000units((12,000/12) *3)

Ordering Policy:[ IP=3000, Q =1000 ]

Policy: [Demand inLT, Q*]

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Chase Strategy 1 2

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