Formulas: Total Inventory Cost = TIC Total Order Cost = TOC Total Carry Cost = TCC Fixed
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Question:
Formulas: | |||||
Total Inventory Cost = | TIC | ||||
Total Order Cost = | TOC | ||||
Total Carry Cost = | TCC | ||||
Fixed Order Cost = | FOC | ||||
Annual Demand (Units) = | U | ||||
Whole Sale Purchase Price | |||||
(or Unit Cost) = | PP | ||||
Annual Carry Cost (% of PP) = | CC | ||||
TOC = FOC * U/Q | |||||
TCC =(Q/2) * CC * PP | |||||
Order Quantity = | Q | ||||
TIC = TOC + TCC = (FOC * (U/Q) + ((U/2) * CC * PP) | |||||
Cost Minimizing Q = SQRT((FOC * U * 2) / (CC * PP)) = | Q* | ||||
note: this is derived by setting the first derivitive | |||||
of TIC to 0. | |||||
Reorder Point = (U/365) * lt = | ROP | ||||
Input Data | |||||
Annual Unit = U | |||||
Purchase Price = PP | |||||
Fixed Order Cost = FOC | |||||
Carry Cost = CC | |||||
Order Lead Time (in days) = LT | |||||
Objective: | |||||
Find the order quantity that minimizes the total cost of managing inventory. |
Solution: | ||||||
Q* = | ||||||
TCC = | ||||||
TOC = | ||||||
TIC = | ||||||
ROP = | units | |||||
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
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