1. ISEN 315 Spring 2011 Dr. Gary Gaukler

2. Review: Prototype LP Problem Desk manufacturer Regular and rolltop desks, made of wood Regular: 20 sqft pine, 16 sqft cedar, 10 sqft maple Rolltop: 10 sqft pine, 4 sqft cedar, 15 sqft maple

3. Review: Prototype LP Problem Profits: –Regular = $90 –Rolltop = $115 Wood available: –200 sqft pine, 128 sqft cedar, 220 sqft maple How much to produce of each type of desk?

4. Review: Prototype LP Problem Decision variables: Objective function: Constraints:

5. Review: Aggregate Planning LP Parameters : –c H, c F –c I –c R –c O, c U, c S

6. Aggregate Planning LP Parameters : –n t –K –I 0,W 0 –D t

7. Aggregate Planning LP Decision variables : –W t –P t –I t –H t, F t

8. Aggregate Planning LP Decision variables : –O t –U t –S t

9. Aggregate Planning LP

10. Constraints:

11. Aggregate Planning LP Constraints:

12. Aggregate Planning LP Objective function:

13. Aggregate Planning LP Now: Implement and solve the problem on p.147 in Excel

14. Hierarchy of Planning Forecast of aggregate demand over time horizon Aggregate Production Plan: determine aggregate production and workforce levels over time horizon Master Production Schedule: Disaggregate the aggregate plan and determine per-item production levels Materials Requirements Planning: Detailed schedule for production/replenishment activities

15. Inventory Control Deterministic inventory control Stochastic inventory control MRP / Lot sizing / JIT Supply chain management

16. Reasons for Holding Inventories

17. Relevant Costs Holding Costs - Costs proportional to the quantity of inventory held.

18. Relevant Costs (continued) Ordering Cost (or Production Cost). Can include both fixed and variable components. slope = c K

19. Relevant Costs (continued) Penalty or Shortage Costs. All costs that accrue when insufficient stock is available to meet demand.

20. Simple EOQ Model Assumptions: 1. Demand is fixed at  units per unit time. 2. Shortages are not allowed. 3. Orders are received instantaneously. 4. Order quantity is fixed at Q per cycle. 5. Cost structure: a) Fixed and marginal order costs (K + cx) b) Holding cost at h per unit held per unit time.

21. Inventory Levels for the EOQ Model

22. Cost Equation for the EOQ Model

23. The Average Annual Cost Function G(Q)

25. The Optimal Q*

26. Properties of the EOQ Solution

27. Example Desk production rate = 200 per month Each desk needs 40 screws Screws cost $0.03 Fixed delivery charges are $100 per order 25% interest rate for holding cost What is the optimal order size?

28. Example