Inventory 
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Inventory These models use different variations of the economic order quantity (EOQ) model in order to determine proper order or production quantities. Besides the standard EOQ model we include the economic production quantity (EPQ) model. For both the economic order quantity and economic production quantity model we allow shortages to be included. Finally we allow quantity discounts for the EOQ model.
A second type of model is ABC Analysis.
The screen below contains an example that includes both the data and the solution.
Demand rate. The rate of demand or usage is to be entered here. Typically this demand rate is an annual rate but it does not need to be. The time units for this demand rate must match the time units for the holding cost.
Setup cost. This is the fixed cost of placing each order or making each production run.
Holding Cost Rate. This is the cost of holding or carrying one unit of inventory for one time period. This cost is either given as a particular dollar amount or is given as a percentage of the price of the item. That is, if you want the holding cost to be a percentage of the unit cost then enter a percent sign, '%' after the number. For example, '20' means 20 dollars but '20%' means 20% of the unit cost. If the holding cost is a percentage of the unit cost then you must enter the unit cost.
Unit cost. This is sometimes necessary but many times not since the EOQ is independent of the unit cost.
The output screen appears above. In example 1 we have solved a standard EOQ model. The model results are as follows.
Optimal order quantity. This is the most economical order quantity. If there is no quantity discount then this is the EOQ. However, when a quantity discount is available (as in example 3) this is either the EOQ or a discount point above the EOQ. In this example the optimal order quantity is 16.33 units per order.
Maximum inventory level. It is useful to know the largest amount that will be in inventory. In the standard EOQ model this is simply the amount that is ordered but in a production or shortage model this is less. In this example the inventory will never exceed 16.33 units.
Average inventory level. If there are no backorders then the average inventory is half of the maximum inventory. Annual holding costs are based on the average inventory.
Orders per year. The assumed time period is one year and the number of orders is displayed. In this example it is 12.25.
Inventory costs. These are the total of the holding, setup and shortage costs. The costs for the units themselves are not included on this line. In the example the inventory costs are $489.90. In a basic EOQ model without quantity discounts, one half of those costs are holding costs and one half are set-up costs.
Unit costs. This is the total cost for ordering the units. In many instances the individual unit cost will be zero and therefore the total unit costs will be zero.
Total costs. This is the total cost of both the inventory costs and the unit costs. This figure is useful for checking work on problems with discounts.
A graph of cost versus inventory is displayed below.
Below we display data for a problem with production. The data includes the usual parameters of demand rate, setup cost, holding cost and unit cost. Notice that we have set the holding cost at 20% rather than $20..
In addition, we are asked for a daily production rate and either a daily demand rate or the number of days per year. Notice in this example that we have set the days per year to 250. The program will compute the daily demand rate as 10,000/250. Alternatively we could have entered the daily demand rate and the program would compute the days per year.
The solution appears below. First note that the holding cost has been computed as 20% of $100 or $20. Also the daily demand rate has been found to be 40. The remainder of the results are the same as in the first example.
A screen for quantity discounts appears below. Once again, the usual information is placed at the top. In addition, up to four price ranges may be given.
A detailed analysis of the order quantities and costs at each price range is available.
A data screen appears below.
For each item the information to be entered is:
Item name. As usual, a name can be entered on each line.
Demand. The demand rate for each item is to be given.
Item price. The cost or price of each item is to be given
Percentage of A and B items. In the example we want 20% of the items to be A items and 30 % to be B items. After the program sorts the items by dollar volume, the first 20% of 6 items (.6 items rounded to 1) will be classified as an A item and then 30% of 6 (1.8 items rounded to 2) will be classified as B items.
Notice that the items are sorted according to their $-volume percentages. The items computed for each item are:
Dollar-volume = demand*price is computed for each item
Percentage of items = number of units/total number of units
Dollar-volume percentage = The item dollar-volume/total dollar volume is displayed.
Cumulative dollar - volume percentage - a running total of dollar volume.
| 1. Introduction | 2. Example | 3. Main Menu | 4. Printing | 5. Graphs | 6. Modules |
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