Example 17.

1 Hotel Reservations - Full Marginal Analysis Solution

Co Cost
= $ per
200.00
unit of demand overestimated
CuCost
= $ per80.00
unit of demand underestimated

Number of Units Overbooked

No-shows Probability 0 1 2 3 4 5 6

0 0.050 - 200 400 600 800 1,000 1,200

1 0.080 80 - 200 400 600 800 1,000
2 0.100 160 80 - 200 400 600 800
3 0.150 240 160 80 - 200 400 600
4 0.200 320 240 160 80 - 200 400
5 0.150 400 320 240 160 80 - 200
6 0.110 480 400 320 240 160 80 -
7 0.060 560 480 400 320 240 160 80
8 0.050 640 560 480 400 320 240 160
9 0.040 720 640 560 480 400 320 240
10 0.010 800 720 640 560 480 400 320

Total Cost 337.6 271.6 228.0 212.4 238.8 321.2 445.6

Exp ected C o st ($)

1400

1200

1000

800

600

400

200

0
0 1 2 3 4 5 6 7 8 9 10
Number Overbooked
verbooked

7 8 9 10

1,400 1,600 1,800 2,000

1,200 1,400 1,600 1,800
1,000 1,200 1,400 1,600
800 1,000 1,200 1,400
600 800 1,000 1,200
400 600 800 1,000
200 400 600 800
- 200 400 600
80 - 200 400
160 80 - 200
240 160 80 -

600.8 772.8 958.8 1,156.0

Example 17.2 - EOQ and Reorder Point

Annual demand (D) 1000 Q0 =

Ordering cost (S) $5.00 Average Inventory =
Holding cost per unit per year (H) $1.25

Days in operation per year = 360 Reorder point =

Lead time (L) 5 Days per cycle =
Cost per unit (C) $12.50 Number of cycles per year =
Total Annual Holding and Ordering Cost =
Total Cost =

100.0
Inventory
Buildup
Order Received
Quantity

50.0

13.9

0.0
0 20 40 60 80 100 120 140 160 180
Time Horizon
 X ROP
0 13.9
162.0 13.9

T CumProd Q y
63 0 0 1000
63 300.0 162.0

Time InvLevel Usage CumProd

CumInv 0.0 90.0 0
CumInv 0.0 90.0 0.0 0
UseInv 0.0 90.0 90.0 0
UseInv 32.4 0.0 0
CumInv 32.4 90.0 0
CumInv 32.4 90.0 0.0 0
UseInv 32.4 90.0 90.0 0
UseInv 64.8 0.0 0
CumInv 64.8 90.0 0.0 0
CumInv 64.8 90.0 90.0 0
UseInv 64.8 90.0 0
UseInv 97.2 0.0 0
CumInv 97.2 90.0 0.0 0
CumInv 97.2 90.0 90.0 0
UseInv 97.2 90.0 0
UseInv 129.6 0.0 0
CumInv 129.6 90.0 0.0 0
CumInv 129.6 90.0 90.0 0
UseInv 129.6 90.0 0
UseInv 162.0 0.0 0
 Q0 = 90
Average Inventory = 45.0

Reorder point = 13.9

Days per cycle = 32.4
Number of cycles per year = 11.1
Total Annual Holding and Ordering Cost = $ 111.81
Total Cost = 12,611.81

Inventory
Buildup
Order Received

13.9

120 140 160 180

13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
13.9
 Example 17.4

Example 17.4 - Order Quantity and Reorder Point

OBJECTIVE:
This template can be used to calculate different values
for an EOQ model. It can also be used for models involving
stochastic demand patterns.

INPUT:

Annual Demand: D/year D 21900

Cost per Unit C
Inventory charge (% of unit cost) i
Holding cost: H (if not given,H = i*C) H $0.50
Ordering Cost S $10.00
Length of year: N(months,weeks,days) N 365
demand per (month,week,day) d 60
Std. Deviation/(month,week,day) σd 7
Lead TimeL L(months,weeks,days)) L 6
Lead-time Standard Deviation: σL 17.15
Service Level P 95%
Safety Stock(if given) SS 0

OUTPUT:

Optimal Order Quantity (Qopt) = 935

Annual Inventory Holding Cost = $233.75
Annual Ordering Cost = $234.22
Annual Unit Cost =
Total Cost = $467.97
Safety Factor - z: (use E(z) & table below) = 1.64
E(z) = 0.092
Cycle Time - T(in days) = 15.58
Number of Orders per year = 23
Safety Stock = 28.12014225
Reorder Point, R = 388

Expected Number Out of Stock versus Standard Deviation

Page 7
Example 17.4

(Normalized to a Standard Deviation of 1)

SL z E(z)
0.0000 -4.50 4.5000
0.0000 -4.49 4.4900
0.0000 -4.48 4.4800
0.0000 -4.47 4.4700
0.0000 -4.46 4.4600
0.0000 -4.45 4.4500
0.0000 -4.44 4.4400
0.0000 -4.43 4.4300
0.0000 -4.42 4.4200
0.0000 -4.41 4.4100
0.0000 -4.40 4.4000
0.0000 -4.39 4.3900
0.0000 -4.38 4.3800
0.0000 -4.37 4.3700
0.0000 -4.36 4.3600
0.0000 -4.35 4.3500
0.0000 -4.34 4.3400
0.0000 -4.33 4.3300
0.0000 -4.32 4.3200
0.0000 -4.31 4.3100
0.0000 -4.30 4.3000
0.0000 -4.29 4.2900
0.0000 -4.28 4.2800
0.0000 -4.27 4.2700
0.0000 -4.26 4.2600
0.0000 -4.25 4.2500
0.0000 -4.24 4.2400
0.0000 -4.23 4.2300
0.0000 -4.22 4.2200
0.0000 -4.21 4.2100
0.0000 -4.20 4.2000
0.0000 -4.19 4.1900
0.0000 -4.18 4.1800
0.0000 -4.17 4.1700
0.0000 -4.16 4.1600
0.0000 -4.15 4.1500
0.0000 -4.14 4.1400
0.0000 -4.13 4.1300
0.0000 -4.12 4.1200
0.0000 -4.11 4.1100
0.0000 -4.10 4.1000
0.0000 -4.09 4.0900
0.0000 -4.08 4.0800
0.0000 -4.07 4.0700
0.0000 -4.06 4.0600
0.0000 -4.05 4.0500
0.0000 -4.04 4.0400
0.0000 -4.03 4.0300

Page 8
Example 17.4

0.0000 -4.02 4.0200

0.0000 -4.01 4.0100
0.0000 -4.00 4.0000
0.0000 -3.99 3.9900
0.0000 -3.98 3.9800
0.0000 -3.97 3.9700
0.0000 -3.96 3.9600
0.0000 -3.95 3.9500
0.0000 -3.94 3.9400
0.0000 -3.93 3.9300
0.0000 -3.92 3.9200
0.0000 -3.91 3.9100
0.0000 -3.90 3.9000
0.0001 -3.89 3.8900
0.0001 -3.88 3.8800
0.0001 -3.87 3.8700
0.0001 -3.86 3.8600
0.0001 -3.85 3.8500
0.0001 -3.84 3.8400
0.0001 -3.83 3.8300
0.0001 -3.82 3.8200
0.0001 -3.81 3.8100
0.0001 -3.80 3.8000
0.0001 -3.79 3.7900
0.0001 -3.78 3.7800
0.0001 -3.77 3.7700
0.0001 -3.76 3.7600
0.0001 -3.75 3.7500
0.0001 -3.74 3.7400
0.0001 -3.73 3.7300
0.0001 -3.72 3.7200
0.0001 -3.71 3.7100
0.0001 -3.70 3.7000
0.0001 -3.69 3.6900
0.0001 -3.68 3.6800
0.0001 -3.67 3.6700
0.0001 -3.66 3.6600
0.0001 -3.65 3.6500
0.0001 -3.64 3.6400
0.0001 -3.63 3.6300
0.0001 -3.62 3.6200
0.0002 -3.61 3.6100
0.0002 -3.60 3.6000
0.0002 -3.59 3.5900
0.0002 -3.58 3.5800
0.0002 -3.57 3.5700
0.0002 -3.56 3.5600
0.0002 -3.55 3.5500
0.0002 -3.54 3.5400
0.0002 -3.53 3.5301

Page 9
Example 17.4

0.0002 -3.52 3.5201

0.0002 -3.51 3.5101
0.0002 -3.50 3.5001
0.0002 -3.49 3.4901
0.0003 -3.48 3.4801
0.0003 -3.47 3.4701
0.0003 -3.46 3.4601
0.0003 -3.45 3.4501
0.0003 -3.44 3.4401
0.0003 -3.43 3.4301
0.0003 -3.42 3.4201
0.0003 -3.41 3.4101
0.0003 -3.40 3.4001
0.0003 -3.39 3.3901
0.0004 -3.38 3.3801
0.0004 -3.37 3.3701
0.0004 -3.36 3.3601
0.0004 -3.35 3.3501
0.0004 -3.34 3.3401
0.0004 -3.33 3.3301
0.0005 -3.32 3.3201
0.0005 -3.31 3.3101
0.0005 -3.30 3.3001
0.0005 -3.29 3.2901
0.0005 -3.28 3.2801
0.0005 -3.27 3.2701
0.0006 -3.26 3.2601
0.0006 -3.25 3.2502
0.0006 -3.24 3.2402
0.0006 -3.23 3.2302
0.0006 -3.22 3.2202
0.0007 -3.21 3.2102
0.0007 -3.20 3.2002
0.0007 -3.19 3.1902
0.0007 -3.18 3.1802
0.0008 -3.17 3.1702
0.0008 -3.16 3.1602
0.0008 -3.15 3.1502
0.0008 -3.14 3.1402
0.0009 -3.13 3.1302
0.0009 -3.12 3.1202
0.0009 -3.11 3.1103
0.0010 -3.10 3.1003
0.0010 -3.09 3.0903
0.0010 -3.08 3.0803
0.0011 -3.07 3.0703
0.0011 -3.06 3.0603
0.0011 -3.05 3.0503
0.0012 -3.04 3.0403
0.0012 -3.03 3.0303

Page 10
Example 17.4

0.0013 -3.02 3.0204

0.0013 -3.01 3.0104
0.0013 -3.00 3.0004
0.0014 -2.99 2.9904
0.0014 -2.98 2.9804
0.0015 -2.97 2.9704
0.0015 -2.96 2.9604
0.0016 -2.95 2.9505
0.0016 -2.94 2.9405
0.0017 -2.93 2.9305
0.0018 -2.92 2.9205
0.0018 -2.91 2.9105
0.0019 -2.90 2.9005
0.0019 -2.89 2.8906
0.0020 -2.88 2.8806
0.0021 -2.87 2.8706
0.0021 -2.86 2.8606
0.0022 -2.85 2.8506
0.0023 -2.84 2.8407
0.0023 -2.83 2.8307
0.0024 -2.82 2.8207
0.0025 -2.81 2.8107
0.0026 -2.80 2.8008
0.0026 -2.79 2.7908
0.0027 -2.78 2.7808
0.0028 -2.77 2.7708
0.0029 -2.76 2.7609
0.0030 -2.75 2.7509
0.0031 -2.74 2.7409
0.0032 -2.73 2.7310
0.0033 -2.72 2.7210
0.0034 -2.71 2.7110
0.0035 -2.70 2.7011
0.0036 -2.69 2.6911
0.0037 -2.68 2.6811
0.0038 -2.67 2.6712
0.0039 -2.66 2.6612
0.0040 -2.65 2.6512
0.0041 -2.64 2.6413
0.0043 -2.63 2.6313
0.0044 -2.62 2.6214
0.0045 -2.61 2.6114
0.0047 -2.60 2.6015
0.0048 -2.59 2.5915
0.0049 -2.58 2.5816
0.0051 -2.57 2.5716
0.0052 -2.56 2.5617
0.0054 -2.55 2.5517
0.0055 -2.54 2.5418
0.0057 -2.53 2.5318

Page 11
Example 17.4

0.0059 -2.52 2.5219

0.0060 -2.51 2.5119
0.0062 -2.50 2.5020
0.0064 -2.49 2.4921
0.0066 -2.48 2.4821
0.0068 -2.47 2.4722
0.0069 -2.46 2.4623
0.0071 -2.45 2.4523
0.0073 -2.44 2.4424
0.0075 -2.43 2.4325
0.0078 -2.42 2.4226
0.0080 -2.41 2.4126
0.0082 -2.40 2.4027
0.0084 -2.39 2.3928
0.0087 -2.38 2.3829
0.0089 -2.37 2.3730
0.0091 -2.36 2.3631
0.0094 -2.35 2.3532
0.0096 -2.34 2.3433
0.0099 -2.33 2.3334
0.0102 -2.32 2.3235
0.0104 -2.31 2.3136
0.0107 -2.30 2.3037
0.0110 -2.29 2.2938
0.0113 -2.28 2.2839
0.0116 -2.27 2.2740
0.0119 -2.26 2.2641
0.0122 -2.25 2.2542
0.0125 -2.24 2.2444
0.0129 -2.23 2.2345
0.0132 -2.22 2.2246
0.0136 -2.21 2.2147
0.0139 -2.20 2.2049
0.0143 -2.19 2.1950
0.0146 -2.18 2.1852
0.0150 -2.17 2.1753
0.0154 -2.16 2.1655
0.0158 -2.15 2.1556
0.0162 -2.14 2.1458
0.0166 -2.13 2.1360
0.0170 -2.12 2.1261
0.0174 -2.11 2.1163
0.0179 -2.10 2.1065
0.0183 -2.09 2.0966
0.0188 -2.08 2.0868
0.0192 -2.07 2.0770
0.0197 -2.06 2.0672
0.0202 -2.05 2.0574
0.0207 -2.04 2.0476
0.0212 -2.03 2.0378

Page 12
Example 17.4

0.0217 -2.02 2.0280

0.0222 -2.01 2.0183
0.0228 -2.00 2.0085
0.0233 -1.99 1.9987
0.0239 -1.98 1.9890
0.0244 -1.97 1.9792
0.0250 -1.96 1.9694
0.0256 -1.95 1.9597
0.0262 -1.94 1.9500
0.0268 -1.93 1.9402
0.0274 -1.92 1.9305
0.0281 -1.91 1.9208
0.0287 -1.90 1.9111
0.0294 -1.89 1.9013
0.0301 -1.88 1.8916
0.0307 -1.87 1.8819
0.0314 -1.86 1.8723
0.0322 -1.85 1.8626
0.0329 -1.84 1.8529
0.0336 -1.83 1.8432
0.0344 -1.82 1.8336
0.0351 -1.81 1.8239
0.0359 -1.80 1.8143
0.0367 -1.79 1.8046
0.0375 -1.78 1.7950
0.0384 -1.77 1.7854
0.0392 -1.76 1.7758
0.0401 -1.75 1.7662
0.0409 -1.74 1.7566
0.0418 -1.73 1.7470
0.0427 -1.72 1.7374
0.0436 -1.71 1.7278
0.0446 -1.70 1.7183
0.0455 -1.69 1.7087
0.0465 -1.68 1.6992
0.0475 -1.67 1.6897
0.0485 -1.66 1.6801
0.0495 -1.65 1.6706
0.0505 -1.64 1.6611
0.0516 -1.63 1.6516
0.0526 -1.62 1.6422
0.0537 -1.61 1.6327
0.0548 -1.60 1.6232
0.0559 -1.59 1.6138
0.0571 -1.58 1.6044
0.0582 -1.57 1.5949
0.0594 -1.56 1.5855
0.0606 -1.55 1.5761
0.0618 -1.54 1.5667
0.0630 -1.53 1.5574

Page 13
Example 17.4

0.0643 -1.52 1.5480

0.0655 -1.51 1.5386
0.0668 -1.50 1.5293
0.0681 -1.49 1.5200
0.0694 -1.48 1.5107
0.0708 -1.47 1.5014
0.0721 -1.46 1.4921
0.0735 -1.45 1.4828
0.0749 -1.44 1.4736
0.0764 -1.43 1.4643
0.0778 -1.42 1.4551
0.0793 -1.41 1.4459
0.0808 -1.40 1.4367
0.0823 -1.39 1.4275
0.0838 -1.38 1.4183
0.0853 -1.37 1.4092
0.0869 -1.36 1.4000
0.0885 -1.35 1.3909
0.0901 -1.34 1.3818
0.0918 -1.33 1.3727
0.0934 -1.32 1.3636
0.0951 -1.31 1.3546
0.0968 -1.30 1.3455
0.0985 -1.29 1.3365
0.1003 -1.28 1.3275
0.1020 -1.27 1.3185
0.1038 -1.26 1.3095
0.1056 -1.25 1.3006
0.1075 -1.24 1.2917
0.1093 -1.23 1.2827
0.1112 -1.22 1.2738
0.1131 -1.21 1.2650
0.1151 -1.20 1.2561
0.1170 -1.19 1.2473
0.1190 -1.18 1.2384
0.1210 -1.17 1.2296
0.1230 -1.16 1.2209
0.1251 -1.15 1.2121
0.1271 -1.14 1.2034
0.1292 -1.13 1.1946
0.1314 -1.12 1.1859
0.1335 -1.11 1.1773
0.1357 -1.10 1.1686
0.1379 -1.09 1.1600
0.1401 -1.08 1.1514
0.1423 -1.07 1.1428
0.1446 -1.06 1.1342
0.1469 -1.05 1.1257
0.1492 -1.04 1.1172
0.1515 -1.03 1.1087

Page 14
Example 17.4

0.1539 -1.02 1.1002

0.1562 -1.01 1.0917
0.1587 -1.00 1.0833
0.1611 -0.99 1.0749
0.1635 -0.98 1.0665
0.1660 -0.97 1.0582
0.1685 -0.96 1.0499
0.1711 -0.95 1.0416
0.1736 -0.94 1.0333
0.1762 -0.93 1.0250
0.1788 -0.92 1.0168
0.1814 -0.91 1.0086
0.1841 -0.90 1.0004
0.1867 -0.89 0.9923
0.1894 -0.88 0.9842
0.1922 -0.87 0.9761
0.1949 -0.86 0.9680
0.1977 -0.85 0.9600
0.2005 -0.84 0.9520
0.2033 -0.83 0.9440
0.2061 -0.82 0.9360
0.2090 -0.81 0.9281
0.2119 -0.80 0.9202
0.2148 -0.79 0.9123
0.2177 -0.78 0.9045
0.2206 -0.77 0.8967
0.2236 -0.76 0.8889
0.2266 -0.75 0.8812
0.2296 -0.74 0.8734
0.2327 -0.73 0.8658
0.2358 -0.72 0.8581
0.2389 -0.71 0.8505
0.2420 -0.70 0.8429
0.2451 -0.69 0.8353
0.2483 -0.68 0.8278
0.2514 -0.67 0.8203
0.2546 -0.66 0.8128
0.2578 -0.65 0.8054
0.2611 -0.64 0.7980
0.2643 -0.63 0.7906
0.2676 -0.62 0.7833
0.2709 -0.61 0.7759
0.2743 -0.60 0.7687
0.2776 -0.59 0.7614
0.2810 -0.58 0.7542
0.2843 -0.57 0.7471
0.2877 -0.56 0.7399
0.2912 -0.55 0.7328
0.2946 -0.54 0.7257
0.2981 -0.53 0.7187

Page 15
Example 17.4

0.3015 -0.52 0.7117

0.3050 -0.51 0.7047
0.3085 -0.50 0.6978
0.3121 -0.49 0.6909
0.3156 -0.48 0.6840
0.3192 -0.47 0.6772
0.3228 -0.46 0.6704
0.3264 -0.45 0.6637
0.3300 -0.44 0.6569
0.3336 -0.43 0.6503
0.3372 -0.42 0.6436
0.3409 -0.41 0.6370
0.3446 -0.40 0.6304
0.3483 -0.39 0.6239
0.3520 -0.38 0.6174
0.3557 -0.37 0.6109
0.3594 -0.36 0.6045
0.3632 -0.35 0.5981
0.3669 -0.34 0.5918
0.3707 -0.33 0.5855
0.3745 -0.32 0.5792
0.3783 -0.31 0.5730
0.3821 -0.30 0.5668
0.3859 -0.29 0.5606
0.3897 -0.28 0.5545
0.3936 -0.27 0.5484
0.3974 -0.26 0.5424
0.4013 -0.25 0.5363
0.4052 -0.24 0.5304
0.4090 -0.23 0.5244
0.4129 -0.22 0.5186
0.4168 -0.21 0.5127
0.4207 -0.20 0.5069
0.4247 -0.19 0.5011
0.4286 -0.18 0.4954
0.4325 -0.17 0.4897
0.4364 -0.16 0.4840
0.4404 -0.15 0.4784
0.4443 -0.14 0.4728
0.4483 -0.13 0.4673
0.4522 -0.12 0.4618
0.4562 -0.11 0.4564
0.4602 -0.10 0.4509
0.4641 -0.09 0.4456
0.4681 -0.08 0.4402
0.4721 -0.07 0.4349
0.4761 -0.06 0.4297
0.4801 -0.05 0.4244
0.4840 -0.04 0.4193
0.4880 -0.03 0.4141

Page 16
Example 17.4

0.4920 -0.02 0.4090

0.4960 -0.01 0.4040
0.5000 0.00 0.3989
0.5040 0.01 0.3940
0.5080 0.02 0.3890
0.5120 0.03 0.3841
0.5160 0.04 0.3793
0.5199 0.05 0.3744
0.5239 0.06 0.3697
0.5279 0.07 0.3649
0.5319 0.08 0.3602
0.5359 0.09 0.3556
0.5398 0.10 0.3509
0.5438 0.11 0.3464
0.5478 0.12 0.3418
0.5517 0.13 0.3373
0.5557 0.14 0.3328
0.5596 0.15 0.3284
0.5636 0.16 0.3240
0.5675 0.17 0.3197
0.5714 0.18 0.3154
0.5753 0.19 0.3111
0.5793 0.20 0.3069
0.5832 0.21 0.3027
0.5871 0.22 0.2986
0.5910 0.23 0.2944
0.5948 0.24 0.2904
0.5987 0.25 0.2863
0.6026 0.26 0.2824
0.6064 0.27 0.2784
0.6103 0.28 0.2745
0.6141 0.29 0.2706
0.6179 0.30 0.2668
0.6217 0.31 0.2630
0.6255 0.32 0.2592
0.6293 0.33 0.2555
0.6331 0.34 0.2518
0.6368 0.35 0.2481
0.6406 0.36 0.2445
0.6443 0.37 0.2409
0.6480 0.38 0.2374
0.6517 0.39 0.2339
0.6554 0.40 0.2304
0.6591 0.41 0.2270
0.6628 0.42 0.2236
0.6664 0.43 0.2203
0.6700 0.44 0.2169
0.6736 0.45 0.2137
0.6772 0.46 0.2104
0.6808 0.47 0.2072

Page 17
Example 17.4

0.6844 0.48 0.2040

0.6879 0.49 0.2009
0.6915 0.50 0.1978
0.6950 0.51 0.1947
0.6985 0.52 0.1917
0.7019 0.53 0.1887
0.7054 0.54 0.1857
0.7088 0.55 0.1828
0.7123 0.56 0.1799
0.7157 0.57 0.1771
0.7190 0.58 0.1742
0.7224 0.59 0.1714
0.7257 0.60 0.1687
0.7291 0.61 0.1659
0.7324 0.62 0.1633
0.7357 0.63 0.1606
0.7389 0.64 0.1580
0.7422 0.65 0.1554
0.7454 0.66 0.1528
0.7486 0.67 0.1503
0.7517 0.68 0.1478
0.7549 0.69 0.1453
0.7580 0.70 0.1429
0.7611 0.71 0.1405
0.7642 0.72 0.1381
0.7673 0.73 0.1358
0.7704 0.74 0.1334
0.7734 0.75 0.1312
0.7764 0.76 0.1289
0.7794 0.77 0.1267
0.7823 0.78 0.1245
0.7852 0.79 0.1223
0.7881 0.80 0.1202
0.7910 0.81 0.1181
0.7939 0.82 0.1160
0.7967 0.83 0.1140
0.7995 0.84 0.1120
0.8023 0.85 0.1100
0.8051 0.86 0.1080
0.8078 0.87 0.1061
0.8106 0.88 0.1042
0.8133 0.89 0.1023
0.8159 0.90 0.1004
0.8186 0.91 0.0986
0.8212 0.92 0.0968
0.8238 0.93 0.0950
0.8264 0.94 0.0933
0.8289 0.95 0.0916
0.8315 0.96 0.0899
0.8340 0.97 0.0882

Page 18
Example 17.4

0.8365 0.98 0.0865

0.8389 0.99 0.0849
0.8413 1.00 0.0833
0.8438 1.01 0.0817
0.8461 1.02 0.0802
0.8485 1.03 0.0787
0.8508 1.04 0.0772
0.8531 1.05 0.0757
0.8554 1.06 0.0742
0.8577 1.07 0.0728
0.8599 1.08 0.0714
0.8621 1.09 0.0700
0.8643 1.10 0.0686
0.8665 1.11 0.0673
0.8686 1.12 0.0659
0.8708 1.13 0.0646
0.8729 1.14 0.0634
0.8749 1.15 0.0621
0.8770 1.16 0.0609
0.8790 1.17 0.0596
0.8810 1.18 0.0584
0.8830 1.19 0.0573
0.8849 1.20 0.0561
0.8869 1.21 0.0550
0.8888 1.22 0.0538
0.8907 1.23 0.0527
0.8925 1.24 0.0517
0.8944 1.25 0.0506
0.8962 1.26 0.0495
0.8980 1.27 0.0485
0.8997 1.28 0.0475
0.9015 1.29 0.0465
0.9032 1.30 0.0455
0.9049 1.31 0.0446
0.9066 1.32 0.0436
0.9082 1.33 0.0427
0.9099 1.34 0.0418
0.9115 1.35 0.0409
0.9131 1.36 0.0400
0.9147 1.37 0.0392
0.9162 1.38 0.0383
0.9177 1.39 0.0375
0.9192 1.40 0.0367
0.9207 1.41 0.0359
0.9222 1.42 0.0351
0.9236 1.43 0.0343
0.9251 1.44 0.0336
0.9265 1.45 0.0328
0.9279 1.46 0.0321
0.9292 1.47 0.0314

Page 19
Example 17.4

0.9306 1.48 0.0307

0.9319 1.49 0.0300
0.9332 1.50 0.0293
0.9345 1.51 0.0286
0.9357 1.52 0.0280
0.9370 1.53 0.0274
0.9382 1.54 0.0267
0.9394 1.55 0.0261
0.9406 1.56 0.0255
0.9418 1.57 0.0249
0.9429 1.58 0.0244
0.9441 1.59 0.0238
0.9452 1.60 0.0232
0.9463 1.61 0.0227
0.9474 1.62 0.0222
0.9484 1.63 0.0216
0.9495 1.64 0.0211
0.9505 1.65 0.0206
0.9515 1.66 0.0201
0.9525 1.67 0.0197
0.9535 1.68 0.0192
0.9545 1.69 0.0187
0.9554 1.70 0.0183
0.9564 1.71 0.0178
0.9573 1.72 0.0174
0.9582 1.73 0.0170
0.9591 1.74 0.0166
0.9599 1.75 0.0162
0.9608 1.76 0.0158
0.9616 1.77 0.0154
0.9625 1.78 0.0150
0.9633 1.79 0.0146
0.9641 1.80 0.0143
0.9649 1.81 0.0139
0.9656 1.82 0.0136
0.9664 1.83 0.0132
0.9671 1.84 0.0129
0.9678 1.85 0.0126
0.9686 1.86 0.0123
0.9693 1.87 0.0119
0.9699 1.88 0.0116
0.9706 1.89 0.0113
0.9713 1.90 0.0111
0.9719 1.91 0.0108
0.9726 1.92 0.0105
0.9732 1.93 0.0102
0.9738 1.94 0.0100
0.9744 1.95 0.0097
0.9750 1.96 0.0094
0.9756 1.97 0.0092

Page 20
Example 17.4

0.9761 1.98 0.0090

0.9767 1.99 0.0087
0.9772 2.00 0.0085
0.9778 2.01 0.0083
0.9783 2.02 0.0080
0.9788 2.03 0.0078
0.9793 2.04 0.0076
0.9798 2.05 0.0074
0.9803 2.06 0.0072
0.9808 2.07 0.0070
0.9812 2.08 0.0068
0.9817 2.09 0.0066
0.9821 2.10 0.0065
0.9826 2.11 0.0063
0.9830 2.12 0.0061
0.9834 2.13 0.0060
0.9838 2.14 0.0058
0.9842 2.15 0.0056
0.9846 2.16 0.0055
0.9850 2.17 0.0053
0.9854 2.18 0.0052
0.9857 2.19 0.0050
0.9861 2.20 0.0049
0.9864 2.21 0.0047
0.9868 2.22 0.0046
0.9871 2.23 0.0045
0.9875 2.24 0.0044
0.9878 2.25 0.0042
0.9881 2.26 0.0041
0.9884 2.27 0.0040
0.9887 2.28 0.0039
0.9890 2.29 0.0038
0.9893 2.30 0.0037
0.9896 2.31 0.0036
0.9898 2.32 0.0035
0.9901 2.33 0.0034
0.9904 2.34 0.0033
0.9906 2.35 0.0032
0.9909 2.36 0.0031
0.9911 2.37 0.0030
0.9913 2.38 0.0029
0.9916 2.39 0.0028
0.9918 2.40 0.0027
0.9920 2.41 0.0026
0.9922 2.42 0.0026
0.9925 2.43 0.0025
0.9927 2.44 0.0024
0.9929 2.45 0.0023
0.9931 2.46 0.0023
0.9932 2.47 0.0022

Page 21
Example 17.4

0.9934 2.48 0.0021

0.9936 2.49 0.0021
0.9938 2.50 0.0020
0.9940 2.51 0.0019
0.9941 2.52 0.0019
0.9943 2.53 0.0018
0.9945 2.54 0.0018
0.9946 2.55 0.0017
0.9948 2.56 0.0017
0.9949 2.57 0.0016
0.9951 2.58 0.0016
0.9952 2.59 0.0015
0.9953 2.60 0.0015
0.9955 2.61 0.0014
0.9956 2.62 0.0014
0.9957 2.63 0.0013
0.9959 2.64 0.0013
0.9960 2.65 0.0012
0.9961 2.66 0.0012
0.9962 2.67 0.0012
0.9963 2.68 0.0011
0.9964 2.69 0.0011
0.9965 2.70 0.0011
0.9966 2.71 0.0010
0.9967 2.72 0.0010
0.9968 2.73 0.0010
0.9969 2.74 0.0009
0.9970 2.75 0.0009
0.9971 2.76 0.0009
0.9972 2.77 0.0008
0.9973 2.78 0.0008
0.9974 2.79 0.0008
0.9974 2.80 0.0008
0.9975 2.81 0.0007
0.9976 2.82 0.0007
0.9977 2.83 0.0007
0.9977 2.84 0.0007
0.9978 2.85 0.0006
0.9979 2.86 0.0006
0.9979 2.87 0.0006
0.9980 2.88 0.0006
0.9981 2.89 0.0006
0.9981 2.90 0.0005
0.9982 2.91 0.0005
0.9982 2.92 0.0005
0.9983 2.93 0.0005
0.9984 2.94 0.0005
0.9984 2.95 0.0005
0.9985 2.96 0.0004
0.9985 2.97 0.0004

Page 22
Example 17.4

0.9986 2.98 0.0004

0.9986 2.99 0.0004
0.9987 3.00 0.0004
0.9987 3.01 0.0004
0.9987 3.02 0.0004
0.9988 3.03 0.0003
0.9988 3.04 0.0003
0.9989 3.05 0.0003
0.9989 3.06 0.0003
0.9989 3.07 0.0003
0.9990 3.08 0.0003
0.9990 3.09 0.0003
0.9990 3.10 0.0003
0.9991 3.11 0.0003
0.9991 3.12 0.0002
0.9991 3.13 0.0002
0.9992 3.14 0.0002
0.9992 3.15 0.0002
0.9992 3.16 0.0002
0.9992 3.17 0.0002
0.9993 3.18 0.0002
0.9993 3.19 0.0002
0.9993 3.20 0.0002
0.9993 3.21 0.0002
0.9994 3.22 0.0002
0.9994 3.23 0.0002
0.9994 3.24 0.0002
0.9994 3.25 0.0002
0.9994 3.26 0.0001
0.9995 3.27 0.0001
0.9995 3.28 0.0001
0.9995 3.29 0.0001
0.9995 3.30 0.0001
0.9995 3.31 0.0001
0.9995 3.32 0.0001
0.9996 3.33 0.0001
0.9996 3.34 0.0001
0.9996 3.35 0.0001
0.9996 3.36 0.0001
0.9996 3.37 0.0001
0.9996 3.38 0.0001
0.9997 3.39 0.0001
0.9997 3.40 0.0001
0.9997 3.41 0.0001
0.9997 3.42 0.0001
0.9997 3.43 0.0001
0.9997 3.44 0.0001
0.9997 3.45 0.0001
0.9997 3.46 0.0001
0.9997 3.47 0.0001

Page 23
Example 17.4

0.9997 3.48 0.0001

0.9998 3.49 0.0001
0.9998 3.50 0.0001
0.9998 3.51 0.0001
0.9998 3.52 0.0001
0.9998 3.53 0.0001
0.9998 3.54 0.0000
0.9998 3.55 0.0000
0.9998 3.56 0.0000
0.9998 3.57 0.0000
0.9998 3.58 0.0000
0.9998 3.59 0.0000
0.9998 3.60 0.0000
0.9998 3.61 0.0000
0.9999 3.62 0.0000
0.9999 3.63 0.0000
0.9999 3.64 0.0000
0.9999 3.65 0.0000
0.9999 3.66 0.0000
0.9999 3.67 0.0000
0.9999 3.68 0.0000
0.9999 3.69 0.0000
0.9999 3.70 0.0000
0.9999 3.71 0.0000
0.9999 3.72 0.0000
0.9999 3.73 0.0000
0.9999 3.74 0.0000
0.9999 3.75 0.0000
0.9999 3.76 0.0000
0.9999 3.77 0.0000
0.9999 3.78 0.0000
0.9999 3.79 0.0000
0.9999 3.80 0.0000
0.9999 3.81 0.0000
0.9999 3.82 0.0000
0.9999 3.83 0.0000
0.9999 3.84 0.0000
0.9999 3.85 0.0000
0.9999 3.86 0.0000
0.9999 3.87 0.0000
0.9999 3.88 0.0000
0.9999 3.89 0.0000
1.0000 3.90 0.0000
1.0000 3.91 0.0000
1.0000 3.92 0.0000
1.0000 3.93 0.0000
1.0000 3.94 0.0000
1.0000 3.95 0.0000
1.0000 3.96 0.0000
1.0000 3.97 0.0000

Page 24
Example 17.4

1.0000 3.98 0.0000

1.0000 3.99 0.0000
1.0000 4.00 0.0000
1.0000 4.01 0.0000
1.0000 4.02 0.0000
1.0000 4.03 0.0000
1.0000 4.04 0.0000
1.0000 4.05 0.0000
1.0000 4.06 0.0000
1.0000 4.07 0.0000
1.0000 4.08 0.0000
1.0000 4.09 0.0000
1.0000 4.10 0.0000
1.0000 4.11 0.0000
1.0000 4.12 0.0000
1.0000 4.13 0.0000
1.0000 4.14 0.0000
1.0000 4.15 0.0000
1.0000 4.16 0.0000
1.0000 4.17 0.0000
1.0000 4.18 0.0000
1.0000 4.19 0.0000
1.0000 4.20 0.0000
1.0000 4.21 0.0000
1.0000 4.22 0.0000
1.0000 4.23 0.0000
1.0000 4.24 0.0000
1.0000 4.25 0.0000
1.0000 4.26 0.0000
1.0000 4.27 0.0000
1.0000 4.28 0.0000
1.0000 4.29 0.0000
1.0000 4.30 0.0000
1.0000 4.31 0.0000
1.0000 4.32 0.0000
1.0000 4.33 0.0000
1.0000 4.34 0.0000
1.0000 4.35 0.0000
1.0000 4.36 0.0000
1.0000 4.37 0.0000
1.0000 4.38 0.0000
1.0000 4.39 0.0000
1.0000 4.40 0.0000
1.0000 4.41 0.0000
1.0000 4.42 0.0000
1.0000 4.43 0.0000
1.0000 4.44 0.0000
1.0000 4.45 0.0000
1.0000 4.46 0.0000
1.0000 4.47 0.0000

Page 25
Example 17.4

1.0000 4.48 0.0000

1.0000 4.49 0.0000
1.0000 4.50 0.0000

Page 26
 Example 17.4

Standard Deviation

Page 27
Example 17.5 - Quantity to Order using Fixed-Time Period Model with Safety Stock

30 T Number of days between reviews

14 L Lead time in days
10 d-bar Forecast average daily demand (d-bar)
3 sd Standard deviation of demand
98% L Service Level
150 I Current inventory level

19.900 sT+L Standard deviation of demand over the review and lead time
2.054 z z-value for the stated service level
440 Average demand over the vulnerable period
40.87 Safety stock
330 q Order Quantity
Exhibit 17.6 - Total Cost Graph for Basic Fixed-Order Quantity Model

Annual demand (D) 1000

Per Order cost (S) $5.00
Holding cost per unit per year (H) $1.25

Qopt = 90

Q
Total Holding Cost
Total Setup Cost
600 Total Cost
Column G

500
Cost ($)

400

300

200

$111.8
100

0
0 50 100 150 200 250 300 350 400 450 500

Order Quantity
Increment Q 10

Q CumProd QBEP TC
91 0 0 90 0 112
91 112 112 90 91 112

Q THC TSC TC
0 0.0 0 0.0
10 6.3 500.0 506.3
20 12.5 250.0 262.5
30 18.8 166.7 185.4
40 25.0 125.0 150.0
50 31.3 100.0 131.3
60 37.5 83.3 120.8
70 43.8 71.4 115.2
80 50.0 62.5 112.5
90 56.3 55.6 111.8
100 62.5 50.0 112.5
110 68.8 45.5 114.2
120 75.0 41.7 116.7
130 81.3 38.5 119.7
140 87.5 35.7 123.2
150 93.8 33.3 127.1
160 100.0 31.3 131.3
170 106.3 29.4 135.7
180 112.5 27.8 140.3
190 118.8 26.3 145.1
200 125.0 25.0 150.0
210 131.3 23.8 155.1
220 137.5 22.7 160.2
230 143.8 21.7 165.5
240 150.0 20.8 170.8
250 156.3 20.0 176.3
260 162.5 19.2 181.7
270 168.8 18.5 187.3
280 175.0 17.9 192.9
290 181.3 17.2 198.5
300 187.5 16.7 204.2
310 193.8 16.1 209.9
320 200.0 15.6 215.6
330 206.3 15.2 221.4
340 212.5 14.7 227.2
350 218.8 14.3 233.0
360 225.0 13.9 238.9
370 231.3 13.5 244.8
380 237.5 13.2 250.7
390 243.8 12.8 256.6
400 250.0 12.5 262.5
410 256.3 12.2 268.4
420 262.5 11.9 274.4
430 268.8 11.6 280.4
 Q
Total Holding Cost
Total Setup Cost
Total Cost
Column G

400 450 500

Solved Problem 1

Co Cost
= $ per50.00
unit of demand overestimated
CuCost
= $ per30.00
unit of demand underestimated

Number of Units Purchased

Units
Probability 35 36 37 38 39 40
Demanded
35 0.100 - 50 100 150 200 250
36 0.150 30 - 50 100 150 200
37 0.250 60 30 - 50 100 150
38 0.250 90 60 30 - 50 100
39 0.150 120 90 60 30 - 50
40 0.100 150 120 90 60 30 -

Total Cost 75.0 53.0 43.0 53.0 83.0 125.0 -

Exp ected C o st ($)

140

120

100

80

60

40

20

0
35 36 37 38 39 40
Number Purchased
urchased

- - - -
Solved Problem 3

Fixed-Time Period Model with Safety Stock

14 T Number of days between reviews

7 L Lead time in days
120 d-bar Forecast average daily demand (d-bar)
30 sd Standard deviation of demand
99% L Service Level
130 I Current inventory level

137.477 sT+L Standard deviation of demand over the review and lead time
2.326 z z-value for the stated service level
2520 Average demand over the vulnerable period
319.82 Safety stock
2709 q Order Quantity
Solved Problem 4

Fixed-Time Period Model with Safety Stock

14 T Number of days between reviews

7 L Lead time in days
20 d-bar Forecast average daily demand (d-bar)
5 sd Standard deviation of demand
95% L Service Level
180 I Current inventory level

22.913 sT+L Standard deviation of demand over the review and lead time
1.645 z z-value for the stated service level
420 Average demand over the vulnerable period
37.69 Safety stock
277 q Order Quantity