The EOQ Model-Considering Lead Time Determine the reorder point Computing R for placing order when the lead time exceeds a 2.31 cycles ahead is the same as cycle. that 0.31 cycle ahead. Example: E0Q=25; e .31 =500/yr; cycle Q=25 .0155 year ●T=6WkS, T=25/500=2.6wkS; R=8 t/T=2.31--2.31 Order placed Order arrives cycles are included 2.31 cycles =.1154 year in LT. .Action:place every order 2.31 cycles in Fig 4-7 Reorder Point Calculation for advance. Lead Times Exceeding One Cycle
Determine the reorder point when the lead time exceeds a cycle. The EOQ Model-Considering Lead Time Fig 4-7 Reorder Point Calculation for Lead Times Exceeding One Cycle Example: •EOQ=25; • =500/yr; • =6 wks; Computing R for placing order 2.31 cycles ahead is the same as that 0.31 cycle ahead. •T=25/500=2.6 wks; • /T=2.31---2.31 cycles are included in LT. •Action: place every order 2.31 cycles in advance
The EOQ Model-Sensitivity How sensitive is the annual cost function to errors in the calculation of Q? >Considering Example By substituting Q=1,000, 4.1.Suppose that the we can find the average bookstore orders pencils annual cost for this lot size. in batches of 1,000,rather than 3,870 as the optimal G(O)=KA/0+h0/2 solution indicates.What =(12)3,120)/1,000+(0.005)1,000)/2 additional cost is it =$39.94 incurring by using a suboptimal solution? Which is considerably larger than the optimal cost of $19.35
How sensitive is the annual cost function to errors in the calculation of Q? The EOQ Model- Sensitivity Considering Example 4.1. Suppose that the bookstore orders pencils in batches of 1,000, rather than 3,870 as the optimal solution indicates. What additional cost is it incurring by using a suboptimal solution? By substituting Q=1,000, we can find the average annual cost for this lot size. ( ) / /2 (12)(3,120)/1,000 (0.005)(1,000)/ 2 $39.94 G Q K Q hQ Which is considerably larger than the optimal cost of $19.35