In Example 12.7, we discussed the equivalence between the model with shortage costs and the model with a service level constraint. We also showed how to illustrate this equivalence with SolverTable. Extend the SolverTable in the Ordering Cameras 1.xlsx file, with the unit shortage cost as the single input varied from $1 to $15 in increments of $1. As outputs, keep track of the order quantity, the safety stock, the reorder point, the fraction of demand met with existing inventory, and the expected annual setup, holding, and shortage costs. Discuss whether these go in the direction you would expect. Also, discuss how these results relate the two models, one with shortage costs and the other with a service level constraint. (What is equivalent to what?)

Skill-Extending Problems