Inventory Models
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Kalpesh BardeInventory Models
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DETERMINISTIC MODELS IN INVENTORY CONTROL
Prepared by - Kalpesh Barde B.E Mechanical Roll no:-104
INVENTORY MODELS
Inventory models are the different technical methods used to determine order quantity which minimizes the total costs (i.e. ordering cost + inventory carrying cost)
DIFFERENT INVENTORY MODELS
Inventory models
Deterministic
probabilistic
Wilson harry model or E.O.Q model
Production model
E.O.Q model with shortages
WILSON-HARRIS MODEL OR E.O.Q MODEL
This model is used when the demand is known with certainty. Assumptions in this model are:1) Uniform demands. 2) Instantaneous replenishment. 3) Shortages are not allowed. 4) Quantity discounts are not allowed.
MAX.DEMAND
Consumption rate
Average inventory
QUANTITY
TIME
WILSON-HARRIS MODEL OR E.O.Q MODEL
Notations:D = annual demand (units/year) Co= ordering cost (units/annum) Ch =inventory carrying cost Cp = price per unit Q = Order quantity Q* = Economic order quantity N = No. order placed per annum Tc = Total cost per annum Tcm= Minimum total cost
1) Total ordering cost = no. of orders X ordering cost/order = (D/Q) X Co
2) Annual inventory = avg. inventory X inventory carrying cost carrying cost =( Q X Ch ) 2
3) Economic order quantity (Q*) = (2DCo) Ch
4) Minimum total cost Tcm=
2 D Co Ch
5) Optimum no. of orders (N*) = D/Q* 6) Time interval between = no. of working days in a year two orders N*
PRODUCTION MODEL
Max. inventory level STOCK LEVEL (QUANTITY)
If the item is produced within the company itself. Its batch size is decided by production model.
Assumptions in this model are:1) Uniform demand rate. 2) Gradual replenishment. 3) Set up cost is fixed and it does not change with lot size.
tp T
tc
Time
PRODUCTION MODEL
Notations:D = annual demand (units/year) Co= ordering cost (units/annum) Ch =inventory carrying cost Cp = price per unit Q = Order quantity Q* = Economic order quantity N = No. order placed per annum Tc = Total cost per annum P= production rate d=consumption rate T= Cycle time P-d = inventory build up rate tp= production period
Max. inventory at the end of production run = (p-d) tp Quantity produced during production period (Q) = p tp Average inventory = (p-d) tp = Q 2 2 Annual inventory carrying cost = Q 2 1- d p 1- d p Ch
Economic order quantity (Q*) =
2D Co (1-d/p) Ch
Optimal total cost (Tcm) =
2 D Co Ch (1-d/p)
Optimal no. of production run (N*) = D/Q*
E.O.Q MODEL WITH SHORTAGES
This model is used when shortages are faced by company.
Max. inventory level
Assumptions in this model are: Uniform demand rate. Instantaneous replenishment. Shortages are allowed. Quantity discounts are not allowed.
QUANTITY
t2
Q-S t1
TIME
E.O.Q MODEL WITH SHORTAGES
Notations:Cs= shortage cost per unit per period S= Balance unit after back units are satisfied Q-S = number of shortages per order t1 = time period during which inventory is positive t2 = time during which shortage exists T = time between the receipt of orders Q* = Economic order quantity S* = Optimal remaining units after back ordering Q*-S*= optimal amount back ordered Tcm = total optimal inventory cost
Q* =
2 D Co (Cs+Ch) Ch Cs
S* =
2 D Co Cs Ch (Cs+Ch)
Q*- S* = Q* 1 Cs (Ch+Cs)
Tcm =
2 D Co Ch
Cs Ch+ Cs
