⑧ Relevant Costs-Order cost Slope =c K X- Fig.4-3 Order Cost Function
Relevant Costs- Order cost Fig.4-3 Order Cost Function
Relevant Costs-Penalty Cost Also know as shortage cost or stock-out cost-is the cost of not having sufficient stock on hand to satisfy a demand when it occurs. ● Two interprets: In back-order case:include whatever bookkeeping and/or delay costs may be involved; √ In lost-sale case:include of"loss-of-goodwill"cost,a measure of customer satisfaction. 。Two approaches: Penalty cost,p,is charged per-unit basis.Each time a demand occurs that cannot be satisfied immediately,a cost p is incurred independent of how long it takes to eventually fill the demand. Charge the penalty cost on a per-unit-time basis
Relevant Costs- Penalty Cost • Also know as shortage cost or stock-out cost-is the cost of not having sufficient stock on hand to satisfy a demand when it occurs. • Two interprets: In back-order case: include whatever bookkeeping and/or delay costs may be involved; In lost-sale case: include of “loss-of-goodwill” cost, a measure of customer satisfaction. • Two approaches: Penalty cost, p, is charged per-unit basis. Each time a demand occurs that cannot be satisfied immediately, a cost p is incurred independent of how long it takes to eventually fill the demand. Charge the penalty cost on a per-unit-time basis
The EOO Model-Basic Model EOQ-economic order quantity model is the simplest and most fundamental of all inventory models. ● EOQ-Tradeoff between the fixed cost and holding cost ● The basic assumption: Known and constant demand rate A(units/unit time,the default unit of time is a year,yr); No shortage; No order lead time (will be relaxed) √Costs include Set up cost at K per positive order placed; ■ Proportional order cost at c per unit ordered; Holding cost at h per unit held per unit time;
The EOQ Model-Basic Model • EOQ-economic order quantity model is the simplest and most fundamental of all inventory models. • EOQ- Tradeoff between the fixed cost and holding cost • The basic assumption: Known and constant demand rate (units/unit time, the default unit of time is a year, yr); No shortage; No order lead time (will be relaxed) Costs include Set up cost at K per positive order placed; Proportional order cost at c per unit ordered; Holding cost at h per unit held per unit time;
The EOO Model-Basic Model Considerations: Average holding level is Q/2 On-hand inventory level at the time zero is zero; An order must be Slope=-λ placed at time zero; Q is the size of the order (lot size); Next order is placed just when Time t the inventory level drops to zero; The order cycle T=Q/入 Fig 4-4 Inventory Levels for the EOQ Model The objective is to choose Q to minimize the average cost per unit time (usually,a year)
The EOQ Model-Basic Model The objective is to choose Q to minimize the average cost per unit time (usually, a year) Fig 4-4 Inventory Levels for the EOQ Model Average holding level is Q/2 Considerations: On-hand inventory level at the time zero is zero; An order must be placed at time zero; Q is the size of the order (lot size); Next order is placed just when the inventory level drops to zero; The order cycle T=Q/
The EOO Model-Basic Model 国 Express the average annual cost as a function of the lot size Order cost in each order cycle:C(Q)=K+cQ; ● The average holding cost during one order cycle is hQ/2; The average annual cost(ar): The annual total ordering cost G(O) (K+cO)n ho K+cQ,hg_K元 +c+ ho nl 、2 o/a 2 G)=- KA h K元 Q22 G"(O-0 0 for>0; Average holding cost for one cycle that for one year
The EOQ Model-Basic Model Express the average annual cost as a function of the lot size • Order cost in each order cycle: C(Q)=K+cQ; • The average holding cost during one order cycle is hQ/2; • The average annual cost (suppose there are n cycles in a year) : ( ) ( ) 2 /2 2 K cQ n hQ K cQ hQ K hQ GQ c nT Q Q 2 3 2 '( ) ; ''( ) 0 0; 2 Kh K G Q G Q for Q Q Q The annual total ordering cost Average holding cost for one cycle = that for one year