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When to order?
_
We also need a reorder R eo rd er p o in t, R = d L
point to tell us when to _
place an order
d = average daily demand (constant)
L = Lead time (constant)
EOQ MODEL
2UP
Q =
S
• Where as ,
• Q denotes order quantity;
• A denotes demand per time period (e.g.-annual
demand);
• S denotes carrying / holding cost of 1 unit of
stock for one period;
• and P denotes order cost.
EOQ Example 1 (1 of 3)
_
R eo rd er p o in t, R = d L = 2 .7 4 u n its / d ay (7 d ays) = 1 9 .1 8 o r 2 0 u n its
_
R = d L = 27.397 units / day (10 days) = 273.97 or 274 u n its
EOQ = 2 x 1600 x 50
1
= 400 units
When to Reorder with EOQ Ordering ?
•Reorder Point – is the level of inventory at which a
new order is placed
ROP = d . L
•Safety Stock - Stock that is held in excess of
expected demand due to variable demand rate
and/or lead time.
•Service Level - Probability that demand will not
exceed supply during lead time (probability that
inventory available during lead time will meet
demand) 1 - Probability of stockout
Reorder Point Example
2 D S
EOQ
H
2 1000 $100
D= 1000
EOQ
S= $100
C= $ 78
I=
H=
40%
CxI
$31.20
H= $31.20
EOQ = 80 coffeemakers
SaveMart ROP
ROP = demand over lead time
= daily demand x lead time (days)
=dxl