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    Tejinder Singh
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    The document outlines the steps taken to determine the optimal order quantity (Q) for inventory management. It begins with an initial Q of 53 units and evaluates the inventory costs at different Q levels, stopping when a Q is found that results in an inventory cost less than $125. The optimal Q was determined to be 10 units with an inventory cost of $20. The process involved calculating beginning inventory, ending inventory, average inventory, and inventory costs at different order quantities and order release weeks until the lowest cost option was identified.

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    The document outlines the steps taken to determine the optimal order quantity (Q) for inventory management. It begins with an initial Q of 53 units and evaluates the inventory costs at different Q levels, stopping when a Q is found that results in an inventory cost less than $125. The optimal Q was determined to be 10 units with an inventory cost of $20. The process involved calculating beginning inventory, ending inventory, average inventory, and inventory costs at different order quantities and order release weeks until the lowest cost option was identified.

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    11 views6 pages

    Answer 4

    Uploaded by

    Tejinder Singh
    The document outlines the steps taken to determine the optimal order quantity (Q) for inventory management. It begins with an initial Q of 53 units and evaluates the inventory costs at different Q levels, stopping when a Q is found that results in an inventory cost less than $125. The optimal Q was determined to be 10 units with an inventory cost of $20. The process involved calculating beginning inventory, ending inventory, average inventory, and inventory costs at different order quantities and order release weeks until the lowest cost option was identified.

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    © All Rights Reserved
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    of 6

    Answer 4:

    Step 1: Satisfy wk2 Gross requirement & Safety stock. Q = 53

    Step 2: Calculate Inventory Cost = IC(Q = 53) = CHx(average inv)

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    eduled Receipt 15
    Beginning Inventory 15 20 53
    Ending Inventory 15 5 0 3
    Average Inventory
    Order Release 53
    Lot size = PPB, Lead time = 2 wk. Safety Stock = 3 unit.
    15+5 20+0 53+ 3
    IC (Q = 53) = CH[ 2 + 2
    +
    2
    ] = 2.5 * 48 = 120

    = $120 < Cp = $125


    Step 3: Q = 53+5

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8
    Ending Inventory 15 5 0 8 3
    Average Inventory
    Order Release 58
    Lot size = PPB, Lead time = 2 wk. Safety Stock = 3 unit.
    15+5 20+0 53+ 3 8+3
    IC (Q = 53) = CH[ 2 + 2
    +
    2
    +
    2
    ¿ = 2.5 * 53.5 = 133.75

    = $133.75 > Cp = $125 Stop here


    120 is closer to 125. So, Q = 53
    Step 4: Start a new Order Quantity = Q = 15, Order release
    Wk 3.

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8 3 28
    Ending Inventory 15 5 0 8 3 3 3
    Average Inventory
    Order Release 58 25

    3+3 28+3
    IC (Q = 25) = CH[ 2 + 2
    ] = 2.5 *18.5 = 46.25

    = 46.25 < Cp = $125


    Step 5: Start a new Order Quantity = Q = 40, Order
    release Wk 3.

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8 3 43 18
    Ending Inventory
    15
    5 0 8 3 3 18 3
    Average Inventory
    Order Release 58 25+15

    3+3 43+18 18+ 15


    IC (Q = 25) = CH[ 2 + 2
    +
    2
    ¿ = 2.5 * 50 = 125

    = $125> Cp = $125. Stop here


    Step 6: Start a new Order Quantity = Q = 40, Order release
    Wk

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8 3 43 18
    Ending Inventory
    15
    5 0 8 3 3 18 3
    Average Inventory
    Order Release 58 25+15

    3+3 43+18 18+ 3


    IC (Q = 40) = CH[ 2 + 2
    +
    2
    ¿ = 2.5 * 44 = 110

    = $110 < Cp = $125.


    Step 7 : Start a new Order Quantity = Q = 44, Order
    release Wk 3.

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8 3 47 22 7
    Ending Inventory
    15
    5 0 8 3 3 22 7 3
    Average Inventory
    25+15+
    Order Release 58
    4
    3+3 4 7+ 22 22+17 7+ 3
    IC (Q = 25) = CH[ 2 + 2
    +
    2
    +
    2
    ¿ = 2.5 * 62 = 155

    = $155 > Cp = $125. Stop here

    110 is closer than 155 from 125. So Q= 40


    Step 8 : Start a new Order Quantity = Q = 4, Order release
    Wk 3.

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8 3 43 18 3 7
    Ending Inventory
    15
    5 0 8 3 3 18 3 3 3
    Average Inventory
    Order Release 58 25+15 4
    3+3 7+3
    IC (Q = 4) = CH[ 2 + 2 ¿ = 2.5 * 8 = 20

    Step 9 : Start a new Order Quantity = Q = 54, Order


    release Wk 3.

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning
    Inventory
    15 20 58 8 3 43 18 3 57 53
    Ending Inventory
    15
    5 0 8 3 3 18 3 3 53 50
    Average Inventory
    4
    Order Release 58 25+15
    +50
    3+3 57 +5 3 5 3+5 0
    IC (Q = 54) = CH[ 2 + 2
    +
    2
    ¿ = 2.5 * 109.5 = 273.75. Stop here

    20 is closer than 273.75 from 125. So, Q = 4


    Step 10 : Start a new Order Quantity = Q = 50, Order release
    Wk

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning 53
    Inventory
    15 20 58 8 3 43 18 3 7
    Ending Inventory 3
    15
    5 0 8 3 3 18 3 3 3
    Average Inventory
    Order Release 58 25+15 4 50
    53+3
    IC (Q = 50) = CH[ 2 ¿ = 2.5 * 28 = 70

    = 70 < 125.
    Step 11 : Start a new Order Quantity = Q = 50 + 17, Order
    release Wk

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning 70 20
    Inventory
    15 20 58 8 3 43 18 3 7
    Ending Inventory 20 3
    15
    5 0 8 3 3 18 3 3 3
    Average Inventory
    50
    Order Release 58 25+15 4
    +17
    70+20 20+3
    IC (Q = 50) = CH[ 2
    +
    2
    ¿ = 2.5 * 56.5 = 141.25

    = 141.25 > 125. Stop here


    141.25 is closer than 70 from 125. So, Q = 67.
    Step 12 : Start a new Order Quantity = Q = 10, Order release
    Wk

    week 1 2 3 4 5 6 7 8 9 10 11 12
    Gross Requirement 10 20 50 5 25 15 4 50 17 10
    Scheduled Receipt 15
    Beginning 70 20
    Inventory
    15 20 58 8 3 43 18 3 7 13
    Ending Inventory 20 17
    15
    5 0 8 3 3 18 3 3 3 3
    10. 45 18.5 =182
    Average Inventory 10 10 33 5.5 3 30.5 3 5 8
    5
    Order Release 58 40 4 67 10 =179
    13+3
    IC (Q = 50) = CH[ 2 ¿ = 2.5 * 8 = 20

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