Scribd
Upload
3 views

lecture-6

The document presents a classical inventory problem involving a newspaper seller who buys and sells newspapers, detailing the costs, profits, and demand simulation over a 20-day period. It explains how to determine the optimal number of newspapers to purchase by simulating various demand scenarios and calculating profits. Additionally, it discusses inventory levels, lead times, and shortage conditions through further simulations, concluding with average ending inventory estimates and shortage occurrences.

Uploaded by

myworkmyangel
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
3 views

lecture-6

The document presents a classical inventory problem involving a newspaper seller who buys and sells newspapers, detailing the costs, profits, and demand simulation over a 20-day period. It explains how to determine the optimal number of newspapers to purchase by simulating various demand scenarios and calculating profits. Additionally, it discusses inventory levels, lead times, and shortage conditions through further simulations, concluding with average ending inventory estimates and shortage occurrences.

Uploaded by

myworkmyangel
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 14

Simple Inventory System Example

Maysoon Isleem
 A classical inventory problem concerns the purchase and sale of
newspapers. The paper seller buys the papers for 33 cents each and
sells them for 50 cents each. Newspapers not sold at the end of the
day are sold as scrap for 5 cents each. Newspapers can be purchased
in bundles of 10. Thus, the paper seller can buy 50, 60, and so on.
There are three types of news days, “good”, “fair”, and “poor”, with
probabilities of 0.35, 0.45, and 0.20,respectively. The problem is to
determine the optimal number of papers the newspaper seller should
purchase. This will be accomplished by simulating demands for 20
days and recording profits from sales each day.

 The profits are given by the following relationship:


 Tables 2.16 and 2.17 provide the random-digit assignments for the types of
newsdays and the demands for those newsdays.

 To solve this problem by simulation requires setting a policy of buying a


certain number of papers each day, then simulating the demands for papers
over the 20-day time period to determine the total profit. The policy (number
of newspapers purchased) is changed to other values and the simulation
repeated until the best value is found.
 The simulation table for the decision to purchase 70 newspapers is shown in
Table 2.18. On day 1 the demand is for 60 newspapers. The revenue from
the sale of 60 newspapers is $30.00. Ten newspapers are left over at the end
of the day. The salvage value at 5 cents each is 50 cents.

 The profit for the first day is determined as follows:


Profit = $30,00 −$23,10 − 0 + $50 =$7,40
 On the fifth day the demand is greater than the supply. The revenue from
sales is $35,00, since only 70 papers are available under this policy. An
additional 20 papers could have been sold. Thus, a lost profit of $3.40 (20 X
17 cents) is assessed. The daily profit is determined as follows:

 Profit = $35,00 − $23,10 − $3,40 + 0 = $8,50

 The profit for the 20-day period is the sum of the daily profits, $174.90.

 It can also be computed from the totals for the 20 days of the simulation as
follows:
 Total profit = $645,00 − $462,00 − $13,60 + $5,50 = $174,90
 In general, since the results of one day are independent of those of previous
days, inventory problems of this type are easier than queuing problems when
solved in a spreadsheet such as Excel.
 Suppose that the maximum inventory level, M, is 11 units and the review
period, N, is 5 days. The problem is to estimate, by simulation, the average
ending units in inventory and the number of days when a shortage condition
occurs.
 The distribution of the number of units demanded per day is shown in Table
2.19.
 In this example, lead time is a random variable, as shown in Table 2.20.
 Assume that orders are placed at the close of business and are received for
inventory at the beginning of business as determined by the lead time.
 To make an estimate of the mean units in ending inventory, many cycles
would have to be simulated.

 The random-digit assignments for daily demand and lead time are shown in
the rightmost columns of Tables 2.19 and 2.20. The resulting simulation
table is shown in Table 2.21.

 The simulation has been started with the inventory level at 3 units and an
order of 8 units scheduled to arrive in 2 days' time.

 Following the simulation table for several selected days indicates how the
process operates. The order for 8 units is available on the morning of the
third day of the first cycle, raising the inventory level from 1 unit to 9 units.

 Demands during the remainder of the first cycle reduced the ending
inventory level to 2 units on the fifth day. Thus, an order for 9 units was
placed.
 The lead time for this order was 1 day. The order of 9 units was added to
inventory on the morning of day 2 of cycle 2.

 Notice that the beginning inventory on the second day of the third cycle was
zero. An order for 2 units on that day led to a shortage condition. The units
were backordered on that day and the next day also. On the morning of day
4 of cycle 3 there was a beginning inventory of 9 units

 The 4 units that were backordered and the 1 unit demanded that day
reduced the ending inventory

 to 4 units.

 Based on five cycles of simulation, the average ending inventory is


approximately 3.5 (88 % 25) units. On 2 of 25 days a shortage condition
existed.
 The 4 units that were backordered and the 1 unit demanded that day
reduced the ending inventory to 4 units.

 Based on five cycles of simulation, the average ending inventory is


approximately 3.5 (88 % 25) units. On 2 of 25 days a shortage condition
existed.

You might also like