Dynamic Inventory Lot Size

DYNAMIC INVENTORY LOT SIZE
TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................... i
CHAPTER 1: INTRODUCTION....................................................................................... 1
1.1.
Background Information.................................................................................1
CHAPTER 2: LITERATURE REVIEW...............................................................................4

2.1.
Introduction................................................................................................. 4
2.2.
Traditional Economic Order Quantity (EOQ) model......................................4
2.3.
Dynamic lot sizing problem.........................................................................4
2.3.1.
Varying the Demand Only.....................................................................4
2.3.2.
Varying other Inventory Variables.........................................................4
2.4.
Model Solution Technics.............................................................................. 5
2.4.1.
Heuristic / Mathematical Algorithms Solutions......................................5
2.4.2.
Non-Linear Optimization........................................................................5
2.4.3.
New Lagrangian Heuristic Solution........................................................5
CHAPTER 3: CONCLUSION.......................................................................................... 6
REFERENCES.............................................................................................................. 7
1.1.
CHAPTER 1: INTRODUCTION
Background Information
Inventory are commodities, materials that are carried in stocks for consumption (Balkhi, 2009).
The primary inventory is regarding manufacture, wholesale and retail. Consequently, the need
for extensive research on inventory is paramount to improve efficiency and performance
regarding cost. Nonetheless, the research if done well, it would save a lot of money for
development.
Lot size, on the other hand, is viewed terms of decisions that pertain to inventory levels, the cost
of setup or ordering, capacity requirement and availability (Yilmaz, 1982). Such decisions are
impacted by the cost of setup, the cost of carrying an item inventory. There are many reasons
why lot sizing is needed. Among the reasons noted above are business and production specific.
However, in stock, lot sizing is necessary majorly in the supply chain to control with the sole role
to match supply and demand.
Inventory theory, on the other hand, handles management of goods with the aim to monitor
satisfaction of demand of commodities (Waldmann, 2000). The element factors in inventory
models are quantity and replenishment criteria. The success of the models depends on the
complexity of the assumptions on demand, cost and the general characteristics of the system. The
real problems on inventory control involve multiple products (Waldmann, 2000).
Notwithstanding, problems involving single products lead to many possible models since the
assumptions made on the key variables are enormous. Furthermore, inventory models are
distinguished based on the assumptions on various aspect of time and logistic on the model.
There are different types of lot sizing techniques: Fixed Order Quantity (FOQ); Economic Order
Quantity (EOQ); Lot-for-Lot (L4L); Periods of Supply (POS); Period Order Quantity (POQ);
1
Least Unit Cost (LUC); Least Total Cost (LCT) and Part Period Balancing (PPB) (Subramaniam,
2009).
In FOQ, a specific number of units may be ordered each time an order is placed for a particular
item and the quantity may be arbitrary or EOQ (Subramaniam, 2009). EOQ is where an order
quantity that determines the amount of an item to be purchased is fixed with the goal to minimize
the combined cost of order and acquiring inventory. EOQ can be represented as
EOQ=
Cp
2C p D
CH
where
is the annual demand for the item,
is the cost of order preparation or setup cost,
CH
is the order quantity,
is the inventory carrying cost per unit
per year. LFL also known as discrete order quantity is where the planned order is generated in
quantities equal to the net requirements in each period (Subramaniam, 2009; Yilmaz, 1982). In
this case, there is no extra on-hand inventory. This is often used mostly in perishable food items
where market fluctuations are widely. POS is where lot size is equivalent to net requirements for
specific quantity of future time (Yilmaz, 1982).
In POQ, EOQ is used to calculate a fixed number of periods required for each order. Thus,
POQ=
EOQ
Avg . LUC is dynamic lot sizing technique. This technique sums ordering cost and
inventory cost for each trial lot size, then division by the number of units in the lot size and the
lot size with the lowest unit cost number is selected. LTC is also dynamic lot sizing technique
used to order quantity by calculation of carrying cost and ordering cost for various lot size and
the costs with almost equal lot is selected.
2
PPB is where variation of LTC with back and forward presumptions. The major calculation
involves determination of economic part period (EPP), where EPP can be calculated by
ordering cost
.
Carrying cost The requirement periods is added until the period approximate the EPP, where
Part period is the quantity of units of inventory held for specific time (Subramaniam, 2009).
Dynamic lot size is the generalized inventory theory of economic order quantity where the
models takes care of the demand for the product as a function of time (Lee, 2001). Dynamic lot
sizing tends to solve problems related to dynamic demand for a single item over a finite horizon
against space: facility, warehouse or retail (Lee, 2001).
CHAPTER 2: LITERATURE REVIEW

2.1.
Introduction
This chapter contains information on the EOQ. The problem in dynamic lot sizing technique
shall also be presented in depth. The various solutions of the model techniques shall also be
covered.
2.2.
Traditional Economic Order Quantity (EOQ) model
EOQ model considers tradeoff between storage and ordering cost to select a quantity to use in
replenishing item inventories. Ordering frequency is determined by the quantity of the ordering cost for
instance, a larger order-quantity shall reduce the ordering frequency which shall also reduce the ordering
cost (Schwarz, 2008).
General information about it. Explain the EOQ model and its assumptions with relation charts
Explain Inventory costs (holding or carrying cost, ordering cost, shortage costs,,etc) and related
charts/Graph. Add three or four journals papers that Authors talk about this to support. Also, explain
briefly the Economic production quantity EPQ
2.3.
Dynamic lot sizing problem
How varying model parameters in dynamic nature can affect the modelling ..
2.3.1.
Varying the Demand Only

Put here all journals that talk about varying the demand only and criticize them
2.3.2.
Varying other Inventory Variables

Put here all journals that talk about varying the other inventory variables such as , holding cost,
inventory ordering cost, freight cost, quantity discount, supplier lead time etc.) and criticize
them
2.4.
2.4.1.
Model Solution Technics

Heuristic / Mathematical Algorithms Solutions
Put here all journals that talk about and criticize them
2.4.2.
Non-Linear Optimization
2.4.3.
New Lagrangian Heuristic Solution

CHAPTER 3: CONCLUSION
REFERENCES
Balkhi, Z. T. (2009). A general and dynamic production lot size inventory model.
International Journal, 3(3), 187-195.
Lee, C.-Y. a. (2001). A dynamic lot-sizing model with demand time windows.
Management Science, 47, 1384-1395.
Schwarz, L. B. (2008). The economic order-quantity (EOQ) model. In L. B. Schwarz,
Building Intuition (pp. 135-154). Springer.
Subramaniam, A. (2009, August 15). Lot Sizing Technique. SlideShare. Retrieved
from http://www.slideshare.net/anandsubramaniam/lot-sizing-techniques
Waldmann, K. -H. (2000). Inventory Models. UNESCO EOLSS SAMPLE CHAPTERS, IV.
Optimization and Operations Research. Retrieved from www.eolss.net/samplechapters/c02/e6-05-05-05.pdf
Yilmaz, C. (1982). Lot Sizing Technique. Dissertation Abstracts International Part A:
Humanities and[DISS. ABST. INT. PT. A- HUM. & SOC. SCI.],, 42(7).
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DYNAMIC INVENTORY LOT SIZE

CHAPTER 2: LITERATURE REVIEW...............................................................................4

Traditional Economic Order Quantity (EOQ) model......................................4

Dynamic lot sizing problem.........................................................................4

Varying the Demand Only.....................................................................4

Varying other Inventory Variables.........................................................4

Model Solution Technics.............................................................................. 5

Heuristic / Mathematical Algorithms Solutions......................................5

New Lagrangian Heuristic Solution........................................................5

is the annual demand for the item,

is the cost of order preparation or setup cost,

is the order quantity,

is the inventory carrying cost per unit

CHAPTER 2: LITERATURE REVIEW

Traditional Economic Order Quantity (EOQ) model

Dynamic lot sizing problem

Varying the Demand Only

Varying other Inventory Variables

Model Solution Technics

New Lagrangian Heuristic Solution

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