Basic formulas for inventory management Q Model (with variation on demand) 2*S*D Q* = EOQ= = i*C R = a *L+ss ss = z* L* H TBO = n Average stock = 2 + ss 2 TCH=D*C + * S + (+ ss) ic P Model (with variation on demand) Pt* T = d * (P + L) + ss ss = 3* (P+L) * Use the p model when working with an allotted time period (revision/review period 15 days) -> Golias example uses p model Average stock + ss 2 TCH=DC+n*S+ + ( 7 + s ) * i * C Basic formulas for inventory management Symbols Variable Purchasing cost Ordering cost Symbols Unit C (or P) Per unit S Per order Holding cost percentage, in the horizon Period of time between orders i % of unitary cost t;P; TBO Time Horizon Service level %; equiv. z H Time Z Lead time Number of orders Revision Period Reorder point Demand in the horizon Demand n P Number of standard deviations Number or orders Time R Number of products L Time D Number of units d Number of units Economic order quantity Q*; EOQ Number of units Quantity Target inventory 2 Number of units T Number of units Safety stock SS Number of units Economic Order Quantity TCH= D*C+ *S+ 2 2*S*D Q* = EOQ= i*C 2*S t* = TBO* = i*C*D Q = d*TBO R = d*L n=D/Q Exercise 9 Russel, Lda (RSS) imports sweets. Drops are supplied from Spain by BARCINO, a company located in Barcelona. Both RSS and BARCINO work 52 weeks a year. RSS has its warehouse in Carregado. From this warehouse it supplies its 4 retail stores. RSS receives daily orders from the stores from Monday to Saturday. Stores are open from Monday to Saturday, from 10:00 to 22:00. The warehouse supplies one day after the order, 6 days a week. BARCINO supplies every Tuesday before 10:00 at the central warehouse, according to the orders placed on Friday until 10:00. Note that the warehouse works 6 days a week, from Monday to Saturday. The daily demand from each store, and daily standard deviation in demand, in boxes, are as follows (demand (standard deviation)): Drops Lisbon 25 (2) Porto 35 (4) Braga 25 (3) Setbal 20 (2) Note: RSS places orders in boxes, is supplied in boxes and delivers in boxes Ordering cost BARCINO (drops) 20 per order Selling price (box) Cost price (box) Carrying cost (per year) Service level (99,9%) Stock on hand, in the warehouse Orders already placed 1 week 125 per box 50 per box 56%/year Z = 3,09 330 boxes O boxes 6 days a) Today is Friday 9:00am. RSS Logistics Director asks you to identify how many boxes should be ordered. b) Knowing in advance that BARCINO is willing to change the time between orders and keep lead time, the Director of RSS is not satisfied with the average inventory level of drops as they consider that it is too high. The following suggestion is made: "Without changing the inventory model, I think we should change our time between orders (TBO) to become closer to the economic time between orders (TBO*). I think that this would decrease the average level of inventory of drops". Comment on this statement and justify your position. need to Review Operations Midterms Final 51 Inventory Management exercise 9 (RUSSEL). 25 (2) BARCINO RSS W 35 (4) 25(3) P=lwech 6 days 20 (2) 3 days s PEIday L= Iday closed Sunday orders Friday & drivers Tuesday 1 week days 1 year = 52 weeks a) T=d(P+1) + P+L 6v Why are the Squand = (25 +35+25+20)(6+3)+3.09.6+3 x 22 +42 +32 +22 =945 +53.25 = 998.25999 boxes Order qt 999-330 = 669 boxes. b)+* =TBO* =2*5. 2x 20 because T > Stock on hand 0.56 50105-6.52=0.0066036 years fholding cost purchasing cost demandin horizon (x652)= =2.06 days 105.6 (inventory (R-(days) = 2 +3.09.16 +3 22 + 42 +33 +2 = 368.25 boxes inventory (P= 2 days) = 10522 + 3.09 2+3+ 22+423 +2 = 144,69 boxes