Chapter 4 Notes
Chapter 4 Notes 11167
Popular in OM 423- Inventory Management
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This 3 page Class Notes was uploaded by Brian Brennan on Friday February 13, 2015. The Class Notes belongs to 11167 at University of Alabama - Tuscaloosa taught by Andrea Marks in Spring2015. Since its upload, it has received 76 views. For similar materials see OM 423- Inventory Management in Business, management at University of Alabama - Tuscaloosa.
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Date Created: 02/13/15
Operations Management 423 Chapter 4 Economic Production Quantity Thursday February 12 2015 FYI Economic Production Quantity is also known as Finite production rate model Continuous rate EOQ model Economic Manufacturing Quantity EMQ Economic run quantity Finite Replenishment Order Quantity FREOQ Outline Suppose goods are produced internally rather than purchased from an outside supplier Baking bread at a bakery Demand could also be internal components for a production assembly process In this case items are not available all at one they become available as they are produced If a company meets demand by making its own products the Economic Production Quantity model will be more realistic than the traditional EOQ model Example Subway bakes its own bread and has to meet demand on a daily basis Build up inventory over time and demand will break it down for us Objectives 1 2 9 gt199 Compute the optimal batch size for managing cycle inventory in a production environment very similar to EOQ Compute the optimal cost for an EPQ inventory policy Determine whether a product should be made internally or ordered from an external supplier Compute the optimal production run length or production time Compute the optimal cycle length Compute the optimal maximum inventory level 7 If there is a production setup time LT compute point at which a production cycle should start this is equivalent to the reorder level in EOQ analysis Demand is occurring while we are producing that is always pulling inventory down we will never reach the desired production quantity How does EPQ work Figure 4 11 Finite Replenishment rate see lecture notes on BlackBoard Only capable of replenishing X number of units per day continuing to build up inventory over time if demand stays constant building up stock Operations Management 423 Three cases 1 D P No need to hold inventory Items are soldused as they are produced see World Wide Trailers video from earlier in semester 2 D gt P Never able to build up inventory supply always less than demand Expand capacity or go out of business 3 D lt P This is the case we will analyze Figure 33 Stock level saw tooth diagram see lecture notes on BlackBoard Figure 412 Variation in stock level with finite replenishment rate A maximum inventory production starts and inventory rises At A production stops and demand will take over to affect our inventory then new cycle begins Inventory profile for EPQ model D lt P 0 Since production and demand occur simultaneously and continuously Lead time is no longer zero because demand takes over all other EOQ assumptions still hold Inventory level never reaches batch size of Q Inventory level increases at rate P D during production portion of cycle not at the production rate P Note that Maximum inventory level is denoted A Inventory level decreases at rate D during part of cycle where there is no production EOQ assumptions still hold except for zero lead time Cost Calculations Interpret Q as a production batch size instead of order size Interpret unit cost as a production cost instead of purchase cost Interpret reorder cost as production setup cost EPQ and optimal total cost The derivative is the slope setting slope equal to 0 Operations Management 423 Total Annual Cost 0 Total cost per cycle purchase cost setup cost holding cost Note that As P increases the EPQ will get smaller Inputs to Examples see lecture notes for original word problems and formulas 1 The optimal production batch size and the optimal annual cost Answer 56672 units D 1800 unitsyear P 3500 unitsyear UC 50item RC 650batch HC 3050 15unityear a Find EPQ with formula 566 72 units b First compute VCo and then TCo formula 94 129 2 Would it be better for the company to make the item itself rather than buy it in D 20 unitsmonth UC 1000unit RC 2500order HC 201000 051000 031000 021000 300unit FC 24000 D 40 unitsmonth UC 900unit RC 1000order First EOQ formula 6325 units TCo formula 282975 Then EPQ New EOQ 4216 units EPQ formula 5962 units TCo formula 224049 Answer Produce internally
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