Logistics management

Logistics management

Jorge Oyola
Universidad de Córdoba

Jorge Oyola Logistics 1 / 13

 Logistics management Today’s plan

Outline

1 Review
Safety stock
Discrete demand
2 Strategies for managing the most important units
Slow moving items
Fast moving items

Jorge Oyola Logistics 2 / 13

 Review

Review

Jorge Oyola

Universidad de Córdoba

Jorge Oyola Review 3 / 13

 Review Safety stock

Depends on the service type

Service level P1
Given a B1 cost, the cost function is minimized
 
Q D
CT = AD/Q + + kσL vr + B1 pu≥ (k)
2 Q

Given a service level P1 , the safety stock is set.

Service level P2
Given a B2 cost, the total cost function is minimized
 
Q B2 v σL Gu (k)D
CT = AD/Q + + kσL vr +
2 Q

Given a service level P2 , the safety stock is set.

Jorge Oyola Review 4 / 13

 Review Discrete demand

Reorder point: example with discrete demand

During the last ten cycles, the demand for a particular

product during the lead time has been 64, 51, 48, 32,
93, 21, 47, 57, 41 y 46 units, respectively. The
demand is stable and it has no seasonalities. Assume
that this sample represents very well the behaviour
that the demand could show in the future. If the
reorder point is set to be 51, compute:
The possible number of units out of stock and
the probability of occurrence.
The expected value of the number of units out of
stock.
Probability of an stockout event.
Minimum reorder point, if the average number of
units out of stock should not be greater than 2.9.

Jorge Oyola Review 5 / 13

 Most important units

Strategies for managing the most important units

Jorge Oyola

Universidad de Córdoba

Jorge Oyola Most important units 6 / 13

 Most important units Slow moving items

The B2 cost for expensive (important) and slow moving

items (Q = 1)
An order size equal to one makes sense if D < vr /A

Assumptions
Continuous revision, Q = 1
The demands follows a Poisson
probability distribution
a e −λ
P(x = a) = λ a! .
The lead time (L) is known and
deterministic. The results also apply if
L is stochastic and E (L) is used.
The units out of stock are
backordered.
There is a fractional cost (B2 ) per unit
out of stock.
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 Most important units Slow moving items

The B2 cost for expensive and slow moving items

(Q = 1)– II

Selection of the reorder point (s)

The decision maker is indifferent between
two reorder points s and s + 1 if

ppo (s + 1|x̂L ) r
=
ppo≤ (s + 1|x̂L ) DB2

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 Most important units Slow moving items

Reorder point: Example with a specific B2

A firm wishes to set a reorder point for a

very expensive product, with the goal of
minimizing its costs. The management has
set B2 to 1/5. The product has the
following characteristics: D = 25units/year,
Q = 1, A = $3.2, v = $350/year.,
L = 3.5weeks, r = 0.24$/$·year.
Find the reorder point.

Jorge Oyola Most important units 9 / 13

 Most important units Slow moving items

The B2 cost for expensive and slow moving items (Q > 1)

Just as illustration
The decision maker is indifferent between
two reorder points s and s + 1 if
PQ
j=1 ppo (s + j|x̂L ) r
PQ =
j=1 ppo≤ (s + j|x̂L ) DB2

Jorge Oyola Most important units 10 / 13

 Most important units Slow moving items

The B1 cost for expensive and slow moving items (Q ≥ 1)

Selection of s
The decision maker is indifferent between
two reorder points s and s + 1 if

ppo (s + 1|x̂L ) Qvr

=
ppo≤ (s|x̂L ) DB1

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 Most important units Fast moving items

Simultaneous determination of s and Q with B1 cost for

fast moving items

The demand during the lead time is assumed to be normally distributed.

The goal is to minimize the cost function
 
Q D
CT = AD/Q + + kσL vr + B1 pu≥ (k)
2 Q

Equations to use in an iterative fashion

s 
B1
Q = EOQ 1+ pu≥ (k)
A
v "
u    2 #
u 1 B1 σL EOQ
k = t2ln √
2 2π A Q σL

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 Most important units Fast moving items

Example: simultaneous determination of s and Q with B1

cost for fast moving items

A firm has a B1 cost per stockout event.

For a particular product, B1 = $32,
D = 700containers/year,
v = $12/container , x̂L = 100containers,
σL = 30containers, A = $3.20 y
r = 0.24$/$·year. Find the optimal values
for Q and s, in addition to the expected
cost of implementing the strategy.

Jorge Oyola Most important units 13 / 13