Inventory Part 2

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Economic Production Quantity (EPQ) - uses 2 formulas (see slide 2 for formulas)

1.new total annual cost formula, see slide 2 2.new order quantity formula (see slide 2)

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Economic Production Quantity (EPQ) formulas

1.key difference is that the entire order quantity does not arrive at the same time 2.assume there is a constant production rate, p units per period,slope = -D, slope = P-D

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an EPQ example (see slide 3)

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setting the reorder level, R (see slide 4 for graph)

1. with certainty 2. with uncertainty

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setting the reorder level with no uncertainty

it’s simple: R = d•LT

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with uncertainty, there are several factors to consider:

with uncertainty: R = d•LT + SS CONSIDER: 1.stockout cost 2.holding cost 3.demand variability 4.leadtime variability 5.may be based on some predetermined service level target, for example, no more than a 5% chance of a stockout

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A reorder level example (see slide 5)

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Created by: rainesv