Models for Inventory Management - Economic Order Quantity and Economic Production Quantity
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Economic Order Quantity and Economic Production Quantity Models for Inventory Management Europe Site Site for Asia Site for Middle East USA Site This site is a part of the JavaScript E-labs learning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in the MENU section on this page. Professor Hossein Arsham Inventory control is concerned with minimizing the total cost of inventory. In the U.K. the term often used is stock control. The three main factors in inventory control decision making process are: The cost of holding the stock (e.g., based on the interest rate). The cost of placing an order (e.g., for row material stocks) or the set-up cost of production. The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand. The third element is the most difficult to measure and is often handled by establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay. The ABC Classification The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management. Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand rate
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Transcript of Models for Inventory Management - Economic Order Quantity and Economic Production Quantity
Economic Order Quantity and Economic Production Quantity
Models for Inventory Management
Europe Site Site for Asia Site for Middle East USA Site
This site is a part of the JavaScript E-labs learning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in the MENU section on this page.
Professor Hossein Arsham
Inventory control is concerned with minimizing the total cost of inventory. In the U.K. the term often used is stock control. The three main factors in inventory control decision making process are:
The cost of holding the stock (e.g., based on the interest rate).
The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.
The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.
The third element is the most difficult to measure and is often handled by establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay.
The ABC Classification The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management.
Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage.
Quantity Discount Model Calculation Steps:
Compute EOQ for each quantity discount price. Is computed EOQ in the discount range? If not, use lowest cost quantity in the discount range. Compute Total Cost for EOQ or lowest cost quantity in
discount range. Select quantity with the lowest Total Cost, including the
cost of the items purchased.
The following This JavaScript compute the optimal values for the decision variables based on currently available information about the above factors.
Enter the needed information, and then click the Calculate button.
In entering your data to move from cell to cell in the data-matrix use the Tab key not arrow or enter keys.
MENU:
1. The Classical Model 2. Shortages Permitted Model 3. Production and Consumption Model 4. Production and Consumption with Shortages Model 5. EOQ with Shortages and Lead Time 6. The ABC Classification 7. Inventory Control with Uncertain Demand
The Classical Model
Demand rate: x
Ordering cost: C1
Holding cost: C2
Optimal Ordering Is: Q*
Optimal Cycle Is: T*
Number of Orders Is: n*
Total Cost Is: TC
2
20000
40000
Clear
1.4142135623
0.7071067811
2
56568.542494
Shortages Permitted Model
Demand rate: x
Ordering cost: C1
Holding cost: C2
Shortage cost: C3
Backorder cost: C4
Optimal Ordering Is: Q*
Optimal Shortage Is: S*
Total Cost Is: TC
Shortage Period Is: T2
Period per Cycle Is: T
Production and Consumption Model
Production rate: K
Demand rate: x
Holding cost: C2
Set-up cost: C1
Optimal Run Size Is: Q*
Production Cycle Is: T 1*
Optimal Cycle Is: T*
Cost per Cycle Is: TC
Production and Consumption with Shortages Model
Production rate: K
Demand rate: x
Setup cost: C1
Holding cost: C2
600000
100
0.25
0
2
Clear
600
200
0.001
100
Clear
6000
600
100
0.25
Backorder cost: C4
Optimal Production Is: q*
Optimal Inventory Is: Q*
Optimal Shortage Is: P*
Total Cost Is: TC
Period per Cycle Is: T
EOQ with Shortages and Lead Time
I: Base Economic Order Quantity
Total Demand
Ordering Cost
Holding Cost/unit/year
Unit Price
EOQ
Average Periodic Ordering Intervals
Total Number of Orders
Total Cost
II: EOQ with Shortages and Lead Time
Estimated Lead Time in Days
Shortage Cost/unit/year
EOQ
Level for Reorder Point
Maximum Inventory Level
Total Cost
Longest Delay Time in Days
2
Clear
500
15
20
250
Clear
15
5
Clear
For Technical Details, Back to:Decision Making in Economics and Finance
Necessary Tools for theABC Inventory Classification
Europe Mirror Site Site for Asia Site for Asia-Pacific Site for Middle East UK Site USA Site
This site is a part of the JavaScript E-labs learning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in the MENU section on this page.
Professor Hossein Arsham
The ABC classification process is an analysis of a range of items, such as finished products or customers into three categories: A - outstandingly important; B - of average importance; C - relatively unimportant as a basis for a control scheme. Each category can and sometimes should be handled in a different way, with more attention being devoted to category A, less to B, and less to C.
Inventory Control Application: The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will
account for most of the sales volume and that are the most important ones to control for effective inventory management.
This following JavaScript constructs an empirical cumulative distribution function (ECDF) as a measuring tool and decision procedure for the ABC inventory classification.
Enter the dollar values and demands of up-to-42 distinct items and then click the Calculate button. Blank boxes are not included in the calculations but zeros are.
In entering your data to move from cell to cell in the data-matrix use the Tab key not arrow or enter keys.
To edit your data, including add/change/delete, you do not have to click on the "clear" button, and re-enter your data all over again. You may simply add a pair of numbers to any blank cells, change a number to another in the same cell, or delete a number from a cell. After editing, then click the "calculate" button.
For extensive edit or to use the JavaScript for a new set of data, then use the "clear" button.
Item Number
1 2 3 4 5 6 7 8 9 10 11 12 13 14
$ Value for Each Item
Demand for That Item
Item Number
15 16 17 18 19 20 21 22 23 24 25 26 27 28
$ Value for Each Item
Demand for That Item
Item Number
29 30 31 32 33 34 35 36 37 38 39 40 41 42
$ Value for Each Item
Demand for That Item
Necessary Tools for the ABC Classifications
CLEAR
For Technical Details, Back to:Decision Making in Economics and Finance
Economic Order Quantity and Economic Production Quantity
Models for Inventory Management
Europe Site Site for Asia Site for Middle East USA Site
This site is a part of the JavaScript E-labs learning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in the MENU section on this page.
Professor Hossein Arsham
Inventory control is concerned with minimizing the total cost of inventory. In the U.K. the term often used is stock control. The three main factors in inventory control decision making process are:
The cost of holding the stock (e.g., based on the interest rate).
The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.
The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.
The third element is the most difficult to measure and is often handled by establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay.
The ABC Classification The ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account
for most of the sales volume and that are the most important ones to control for effective inventory management.
Reorder Point: The inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time.
Safety Stock: Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur.
Safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage.
Quantity Discount Model Calculation Steps:
Compute EOQ for each quantity discount price. Is computed EOQ in the discount range? If not, use lowest cost quantity in the discount range. Compute Total Cost for EOQ or lowest cost quantity in
discount range. Select quantity with the lowest Total Cost, including the
cost of the items purchased.
The following This JavaScript compute the optimal values for the decision variables based on currently available information about the above factors.
Enter the needed information, and then click the Calculate button.
In entering your data to move from cell to cell in the data-matrix use the Tab key not arrow or enter keys.
MENU:
1. The Classical Model 2. Shortages Permitted Model 3. Production and Consumption Model 4. Production and Consumption with Shortages Model 5. EOQ with Shortages and Lead Time 6. The ABC Classification 7. Inventory Control with Uncertain Demand
The Classical Model
Demand rate: x
Ordering cost: C1
Holding cost: C2
Optimal Ordering Is: Q*
Optimal Cycle Is: T*
Number of Orders Is: n*
Total Cost Is: TC
Shortages Permitted Model
Demand rate: x
Ordering cost: C1
Holding cost: C2
Shortage cost: C3
Backorder cost: C4
Optimal Ordering Is: Q*
Optimal Shortage Is: S*
Total Cost Is: TC
Shortage Period Is: T2
Period per Cycle Is: T
Production and Consumption Model
Production rate: K
Demand rate: x
Holding cost: C2
Set-up cost: C1
Optimal Run Size Is: Q*
2
20000
40000
Clear
1.41421356
0.70710678
2
56568.5424
600000
100
0.25
0
2
Clear
600
200
0.001
100
Clear
Production Cycle Is: T 1*
Optimal Cycle Is: T*
Cost per Cycle Is: TC
Production and Consumption with Shortages Model
Production rate: K
Demand rate: x
Setup cost: C1
Holding cost: C2
Backorder cost: C4
Optimal Production Is: q*
Optimal Inventory Is: Q*
Optimal Shortage Is: P*
Total Cost Is: TC
Period per Cycle Is: T
Linear Programs Solvers:Software Installation Information
Europe Site Site for Asia Site for Middle East UK Site USA Site
This site provides installation information for a free-of-charge software package that solves Linear Program models by the Simplex Method and/or the Push-and-Pull Method.
Professor Hossein Arsham
6000
600
100
0.25
2
Clear
The software package which is available to download from SixPap.zip, consists of three files:
1. Source.zip - the source code of the latest version. It has been slightly modified since the previous version.
2. Exec.zip - SixPap.exe with help and some samples in \Repository dir (program expects to find samples in that directory, if it doesn't exist, it is created when the program is started).
3. Setup.zip - the setup package.
Notice: This software can be installed on your own personal computer successfully. The steps for installation are as follow:
1. Opened up the link and save all three files (exec.zip, setup.zip and source.zip) in a zip folder, named say LPSolvers in your C-drive (say, in its Program Files).
2. Extracted all these files inside the zip folder. 3. Open the setup.exe and click on ProjectSixPap to install the software. 4. After installation, software created a folder called ProjectSixPap under the address, C:\
Program Files\ LPSolvers\ProjectSixPap. 5. When you click on the SixPap.exe, the software comes up and ready to run. 6. Finally, create a short-cut for the software on your Desktop.
NT Installation: You need the user permission from your NT Administrators to change the Windows\System folder. This is the folder containing various dll-s and ocx-es.
About running the SixPap directly: the file comdlg32.ocx should be located in Windows\System folder. You may upload support.zip, which among others includes the comdlg32.ocx file, url:
http://www.inforta.com/~miha/research/Support.zip
Some more information are at:
http://forums.devshed.com/t130455/s.html?highlight=New+build+turns+on+then+turns+off+10+seconds+later
http://www.nexent.com/tn2/MS98_1600-1699_ReportSimulator/ms_tn_1603.htm " target=new>http://www.nexent.com/tn2/MS98_1600-1699_ReportSimulator/ms_tn_1603.htm
http://forums.aspfree.com/t33925/s.html
Basically, the comdlg32.ocx file must exist in Windows\System, and must be re-registered with the operating system.
All system files needed are the VB6 runtime files, and can be downloaded (again a setup package) from MicroSoft official web page:
http://www.microsoft.com/downloads/details.aspx?FamilyID=bf9a24f9-b5c5-48f4-8edd-cdf2d29a79d5&displaylang=en
If there are any security policy issues - that package is digitally signed by MicroSoft.
Note that the VB6 doesn't create special versions of software for NT environment, and should work properly on all MS Windows (32 bit).
