facilities planning ise310l session 7 september 15, 2015 geza p. bottlik page 1 outline questions?...

FACILITIES PLANNING ISE310LSESSION 7

September 15, 2015

Geza P. Bottlik Page 1

Outline

• Questions?

• Inventory experiences?

• Background quiz results

• Questionnaire results

• Team Questionnaire Results

• Newspaper Problem

• Uneven demand

– Lot for lot, Least Unit Cost, Part-Period Balancing, Silver-Meal

• Quiz on Thursday

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Background Quiz Results

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Questionnaire Results

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Newspaper problem

• Newspaper person’s cost = $0.25, no salvage value

• Profit on a paper = $0.50

• Estimated average sales = 60

• Estimated standard deviation of sales = 5

• Percentage (Service level) = 0.50/(0.50+0.25) = .667

• NORMINV(0.667, 60, 5) = 63 or Q= average + z(std. dev)

• If the overage cost is lower than the shortage cost we order more than the average

• Underage cost = lost profit = Selling price – Cost

• Overage cost = Excess unsalvageable inventory = Cost – salvage value

• Service level = Underage cost/ (Underage + overage cost)

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The newspaper problem

• Expected Profit at Q = 62: $28.64

• Expected Profit at Q = 63: $28.62

• The formula for expected profit comes from the probability of

demand being less or more than the order quantity

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The newspaper problem

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The newspaper problem

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Uneven demand

• But what should we do if the demand pattern is not constant?

• Example:

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Lot for Lot (LforL)

• We order the exact amount for each period’s demand

– No inventory cost

– Ordering cost for each period

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Least Unit Cost (LUC)

• Add the order cost to the carrying cost of adding succeeding

periods’ demand and divide by the total units ordered.

• As long as this result continues to decrease, we keep adding

the demands to the amount ordered

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Part Period Balancing

• This method sets the order horizon equal to the number of

periods that most closely matches the total holding cost with

the setup cost

• Economic Part Period (EPP)=Order Cost/Carrying rate*value

= A/kC

• Part Period (PP) = parts*periods stored

• We keep increasing the order quantity by the next period’s

demand as long the cumulative part-Periods do not exceed

the EPP

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Silver-Meal heuristic

• Similar to Least unit cost, except we compare the average

cost per period

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EOQ

• Calculate the EOQ using the total demand over the number

of periods for which you demand

• Adjust the carrying for the total periods

• Accumulate demand until it approaches the EOQ (or is

closest to it)