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INVEN HW5 Solution

This document provides solutions to three inventory management homework questions. Question 1 determines the optimal order quantity (Q=171 units) and reorder point (s=630 units) for an item using an (s,Q) policy. Question 2 calculates Q(146 units), s(402 units), and S(548 units) for another item, neglecting undershoots. Question 3 similarly finds Q(160 units), s(421 units), and S(581 units) but considers the probability distribution of transaction sizes to account for undershoots.

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Yolo Phong
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135 views3 pages

INVEN HW5 Solution

This document provides solutions to three inventory management homework questions. Question 1 determines the optimal order quantity (Q=171 units) and reorder point (s=630 units) for an item using an (s,Q) policy. Question 2 calculates Q(146 units), s(402 units), and S(548 units) for another item, neglecting undershoots. Question 3 similarly finds Q(160 units), s(421 units), and S(581 units) but considers the probability distribution of transaction sizes to account for undershoots.

Uploaded by

Yolo Phong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

INVENTORY MANAGEMENT – SEMESTER 01 – 2022-2023

HOMEWORK 5 – SOLUTION

Question 1:
Ceiling Drug is concerned about the inventory control of an important item. Currently, they are
using an (𝑠, 𝑄) system where 𝑄 is the EOQ and the safety factor 𝑘 is selected based on a 𝐵1
shortage-costing method. Relevant parameter values are estimated to be
𝐷 = 2,500 𝑢𝑛𝑖𝑡𝑠/𝑦𝑒𝑎𝑟 𝐵1 = $100
𝑣 = $10/𝑢𝑛𝑖𝑡 𝑥
̂𝐿 = 500 𝑢𝑛𝑖𝑡𝑠
𝐴 = $5 𝜎𝐿 = 100 𝑢𝑛𝑖𝑡𝑠
𝑟 = 0.25$/$/𝑦𝑒𝑎𝑟

Determine the simultaneous best values of 𝑄 and 𝑠.

SOLUTION:

2𝐴𝐷 2 × 5 × 2,500
𝐸𝑂𝑄 = √ =√ = 100.0
𝑣𝑟 10 × 0.25

𝐷𝐵1 2,500 × 100


𝑘 = √2 ln [ ] = √2 ln [ ] = 1.66
√2𝜋𝑄𝑣𝜎𝐿 𝑟 √2𝜋 × 100.0 × 10 × 100 × 0.25

With the iterative procedure, we obtain:

Iteration Number 1 2 3 4 5 6 7 8
𝑄 100.0 140.3 157.2 165.5 168.4 170.4 171.3 171.3
𝑘 1.66 1.45 1.36 1.33 1.31 1.30 1.30 1.30

based on the following formulas:

𝐵1
𝑄 = 𝐸𝑂𝑄 √[1 + 𝑝 (𝑘)]
𝐴 𝑢≥

1 𝐵1 𝜎𝐿 𝐸𝑂𝑄 2
𝑘 = √2 ln [ (
)( )( ) ]
2√2𝜋 𝐴 𝑄 𝜎𝐿

𝑝𝑢≥ (𝑘) = 1 − 𝑁𝑂𝑅𝑀. 𝑆. 𝐷𝐼𝑆𝑇(𝑘, 𝑇𝑅𝑈𝐸)


Conclusion:

• The order quantity (𝑄) is: 𝑄 = 171.3 𝑢𝑛𝑖𝑡𝑠 ≈ 171 𝑢𝑛𝑖𝑡𝑠


• The reorder point (𝑠) is: 𝑠 = 𝑥
̂𝐿 + 𝑘𝜎𝐿 = 500 + 1.30 × 100 = 630 𝑢𝑛𝑖𝑡𝑠

Page 1 of 3
INVENTORY MANAGEMENT – SEMESTER 01 – 2022-2023

Question 2:
A retail electronic-supply outlet is considering an (𝑠, 𝑆) control system for one of its products.
Relevant given characteristics of the product include
𝐷 = 2,000 𝑢𝑛𝑖𝑡𝑠/𝑦𝑒𝑎𝑟 𝐵1 = $200
𝑣 = $7.5/𝑢𝑛𝑖𝑡 𝑥
̂𝐿 = 250 𝑢𝑛𝑖𝑡𝑠
𝐴 = $10 𝜎𝐿 = 75 𝑢𝑛𝑖𝑡𝑠
𝑟 = 0.25$/$/𝑦𝑒𝑎𝑟

Find 𝑠 and 𝑆 of this inventory policy neglecting the undershoots.

SOLUTION:

2𝐴𝐷 2 × 10 × 2,000
𝐸𝑂𝑄 = √ =√ = 146 𝑢𝑛𝑖𝑡𝑠
𝑣𝑟 7.5 × 0.25

𝐷𝐵1 2,000 × 200


𝑘 = √2 ln [ ] = √2 ln [ ] = 2.03
√2𝜋𝑄𝑣𝜎𝐿 𝑟 √2𝜋 × 146 × 7.5 × 75 × 0.25

𝑠=𝑥
̂𝐿 + 𝑘𝜎𝐿 = 250 + 2.03 × 75 = 402 𝑢𝑛𝑖𝑡𝑠

𝑆 = 𝑠 + 𝑄 = 402 + 146 = 548 𝑢𝑛𝑖𝑡𝑠

Question 3:
Consider the same product in Question 2, the probability distribution of transaction sizes is as
follows

𝑡0 1 2 3 6 12 24 36 72
𝑝𝑡 (𝑡0 ) 0.15 0.05 0.05 0.3 0.15 0.05 0.1 0.15

Select 𝑠 and 𝑆 simultaneously using the undershoot distribution.

Note: For question 3, students will use Excel to solve the problem. After that, students only
need to write down some key results in their answer sheet. There is an example in the following
page.

SOLUTION:

𝐸(𝑡) = ∑ 𝑡0 𝑝𝑡 (𝑡0 ) = 19.6


𝑡0

𝐸 (𝑡 2 ) = ∑ 𝑡02 𝑝𝑡 (𝑡0 ) = 969.2


𝑡0

Page 2 of 3
INVENTORY MANAGEMENT – SEMESTER 01 – 2022-2023

𝐸(𝑡 3 ) = ∑ 𝑡03 𝑝𝑡 (𝑡0 ) = 61,669.9


𝑡0

1 𝐸(𝑡 2 )
𝐸(𝑥 ′ ) = 𝐸(𝑧) + 𝐸(𝑥) = [ − 1] + 𝑥
̂𝐿 = 24.22 + 250 = 274.22
2 𝐸(𝑡)

2
1 4𝐸(𝑡 3 ) 𝐸(𝑡 2 )
𝑣𝑎𝑟(𝑥 ′ ) = { − 3[ ] − 1} + 𝜎𝐿2 = 437.42 + 752 = 6,062.42
12 𝐸(𝑡) 𝐸(𝑡)

Step 1:

𝐵1
𝑄 = 𝐸𝑂𝑄 √1 + 𝑝 (𝑘) − 𝐸(𝑧)
𝐴 𝑢≥

1 𝐵1 (𝐸𝑂𝑄)2
𝑘 = √2 ln [ ) ( ]
2√2𝜋 𝐴 (𝑄 + 𝐸(𝑧))𝜎𝑥′

Iteration Number 1 2 3 4 5
𝑄 146.1 156.8 159.1 159.9 159.9
𝑘 1.93 1.9 1.89 1.89 1.89

The solution is:

𝑄 = 160 𝑢𝑛𝑖𝑡𝑠

𝑘 = 1.89

Step 2:

𝑠 = 𝐸(𝑥 ′ ) + 𝑘𝜎𝑥′ = 274.22 + 1.89 × √6,062.42 = 421 𝑢𝑛𝑖𝑡𝑠

Step 3:

𝑆 = 𝑠 + 𝑄 = 421 + 160 = 581 𝑢𝑛𝑖𝑡𝑠

Page 3 of 3

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