Lecture9ch.

10
mandagden14.november2016 12.17

IntroductiontoInventoryManagementandProductionPlanningand
Scheduling.
LotSizeModelsPeriodicReviewCase

SCIPS
Introduction
Lectureto Inventory Management and Production Planning
and Scheduling Stochastic Inventory Management: Lot Size Models
Periodic 14. Nber 16_ Nber

utline Repetition Lot Size Model Preliminaries for Periodic Review

Case Terminology O Finit&Horizon Assumption Nota Operations
in the System Finite Solution Algorithm Approximation Infinite
Horizon Case Stationary Policy Heuristic Assumptions Algorithm
Not(R,r)but(Q,r).
Suppose demand Over a Lead time 'Or a part 's normally distributed
with an upected of 20 w'its and a stamdard of 5 units. $100.
demand rate IS 500 units. the cost hold a unit in stock for a year is
and the cost $100. dema backordered, find Q' and r using the Herewehaveanexamplewith(Q,r)policy.
presented in

ecall: Assumptions and Notation Single single is a statiy the. mr

at of and are to K VMiabL CA holding h a unit of a a sin*
outstanding at in time p&nt the Q than cutstanding
inding the Optimal Values Let Q is alwa" at large

F(r)=isacostfunctionweuse,tofindtheoptimalreorder
point.

olution Algorithm Step I : Set = n = I Step 2: Find that satisfies =

Step 3 : U Sing , c O mp Q, Step 4: If e, stt. Otherwise, set n = n
+1 goto Q while r wh"e

Hereweknowwhatwehaveinstockinevery
step.

reliminaries We consider a periodic review setting in Which there

are fixed placing In Chapter 6 We considered a similar system. but
Without the fixed ordering In Chapter 6 the base Stock or policy
vos optimal: any gin period, if petion belm a tain base stock
level. then it is tried to raise the inventory gOtion up to When there
is a significant fixed COSt incurred When placing an it is probably wt
to Mder each period.
reliminaries Fixed leads to a s, S in key numbers: s the pint S
the orderupto level which are tm If the inventory position at the
beginning Of a period is than or equal to the s an Mder is size of
order Will be such that the position after placing the will be equal to
the luel
Whenwehaveaperiodocreview,weperiodocallygoandlookinourstock.Sowedo
notknowhowmuchwehaveallthetime.
Wehadinchapter7about(s1,s)whereweorderedwhentheorderwasgettingtoa
specificlevels1,
Nowwelookatthesituation(s,S)>wherewelookatthestockatperiodicreview.
Sonowwelookat(s,S)policy.
Herewehave2keynumbers:
s=Reorderpoint.Thiswasrbefore.
S=orderuptolevel.ThiswasQbefore.
Inventory s,S Policy s = reorder point. When the inventory goes below the line S =
order up to level, maximum level. inventory at the beginning of the cycle. 4 reorder
point. Time and when we order, we get our products maybe 2 weeks later.







initeHorizon Case Assurnptions: Single product Random from
penod to period Finite planmng Order placement decisions are
made at intervals Of at beginning of puiod All excess demand is
backC*deted times are to be O simplicity There is a fixed "dering
COSt K

Nowwedonothaveconteniuous,wearelookingatitin"boxes"orin
situations.

initeHorizon Case Notation: = number Of periods T K = fid c =

unit cost h = h&ding b = backordering COSt point in period t =
orderupto in period t = net at the bginning of period t. = the net
inventory after order placement in period t. reprting demnd
quantity period t
initeHorizon Case Manner in which the systetn operates: O We the
net which equals the inmtMY position Since the lead time is zero O
An is plued an utemal which the net inventory O Nut. that O If this
demand is less than the supply. a holding cost of h is charged unit; if
dmnd a ct of b p

Wehavebackorderingcosts,ifweorderedtooless.
Orwehaveinventoryholdingcosts,ifwehavetoomuchin
stock.

ase uozp0Haa!u!

ase uozp0Haa!u!
ase uozp0Haa!u!
initeHorizon Case Let total of plt and period: bECo, yo]. that
a at pint in in inntory left at the of a can be in write Minimizing y,
get; min which is dynwnic of

Hereweseeallthecosts,andwewanttominimizeit.Wehavethebackordering
costs,reordercosts,holdingcosts.
Thesearetheexpensivecosts,thatweshouldthinkaboutinourdecisions.

initeHorizon Case To handle erQf me that any at the end Of the

horizon is salvaged at some value Which We denote by w per unit.
which is to be than equal to the cost of the item c. On the other
hand. if there is a backlog at the end Of T. this backlog is fulfilled by
purchasing the requisite quantity at the of c unit. vrax = m, x 20,
It Can be that for the presented formulation, there exists an optimal
policy of St

initeHorizon Case Prcn:edure for computing aplyoximate values of

st and St: We assume the demand in period t is at the beginning Of
t, but demnds enods t + l, t+2,__ Thus, when the decision is
made for period t. all the is to irclLing demands and orders placed,
if any. in periods l, 2, , t. We also assume that units carried to the
end Of the horizan become

Thisiscomplicatedtobeimplicated,weuseapproximations.
 TheMuckstadtbookuseapproximations.

TripleBalancingAlgorithm.

initeHorizon Case Step 3: If the in Step 2 than K, plue an Mder In t
and set t = t: Otherwi*, do not place an order. and go to Step 4. If
an is placed, the order quantity is equal to the qumtity fwjding
futwe penods in the planning is less than or equal to K HeQ = hE
_ + E [xr.l 0242 DTP] Step 4: Set t = t I and go to Step 2.
EndingtheFiniteHorizonCase:
Inventory s,S Policy s = reorder point. When the inventory goes below the
line S = order up to level, maximum level. inventory at the beginning of the
cycle. 4 reorder point. Time and when we order, we get our products maybe 2
weeks later.







nfiniteHcyizon Case Stationary Policy VVe consider the optimal s,
S policy for an all mdel the optimal policy is Stationary. tCKX i.e..
the optimal values Of s and S unchanged An fU an optimal
statiorMY is available see Section 10.3. Here We fCK:us only on a
heuristic attributed to Wagner. H.' Principles Of Operations Research
2nd ed., Prentice Han. Englewood Cliffs. NJ 1975
nfiniteHorizon Case Stationary policy std. distributim Gu the
std. Step I: Compute QE Step 2: Find u such that Gu = s*E.
Step 3: If QE > 1.5", kt s=s+QE, otherwise go to Step 4.