INVENTORY THEORY

1
INVENTORY THEORY
Deterministic Demand 4 Systems with Definite
Time Frame
2
Definite Time Frame

• Total time Tp
• Demand rate D Total Demand TD
• n cycles denote by i
• Qi order quantity for cycle i
• Ti cycle time of cycle i
• Question n ?
• Ti ?
• Qi ?

So as to minimize total inventory cost
3
Constant Demand
In General When demand is constant Use (T,Q)
policy
4
Dynamic Programming Approach

• Work by Wagner Within
• Orderings occur at the beginning of the cycle
  only and receive all ordered item immediately,
• No initial inventory, no inventory left over,
• Total demand in each cycle occur at the beginning
  of the cycle only,
• Shortage is not allowed

5
Dynamic Programming Approach

• Work by Zangwill
• Similar to study by Wagner Whitin, except
  shortage is allowed,
• Optimal order quantity must be enough for total
  demand of one or more (consecutive) cycles

6
Dynamic Programming Approach

• Each cycle
• Order and item costs
• K ciQi
• Holding cost
• only when Ii gt 0
• hi(IiXi1)Ti/2
• Shortage cost
• only when Ii lt 0
• -pi(IiXi1)Ti/2