TASK PERFORMANCE ON LOT SIZING HEURISTICS

Finishing School for Investment Bankers (4 items x 30 points each)

Lot-for-Lot Heuristic

(A) Compute the total inventory costs for the current situation where Ismail is following a
Lotfor-Lot ordering policy to order training materials;

Month January February March April May June

Expected
18 12 16 19 21 11
Attendees

Cost incurred for January

Ordering Cost: $60

Holding Cost:
9 units x $2.5 = $22.5

Iteration 2: February

Ordering Cost: $60

Holding Cost: units

6 units x $2.5 = $15

Iteration 3: March

Ordering Cost: $60

Holding Cost: units

8 units x $2.5 = $20

Iteration 4: April

Ordering Cost: $60

Holding Cost: .5 units

 9.5 units x $2.5 = $23.75

Iteration 5: May

Ordering Cost: $60

Holding Cost: .5 units

10.5 units x $2.5 = $26.25

Iteration 6: June

Ordering Cost: $60

Holding Cost: units

5.5 units x $2.5 = $13.75

Solution Summary:

Month Ordering Cost Holding Cost Total Cost

January $ 60.00 $ 22.50 $82.50

February $ 60.00 $ 15.00 $75.00

March $ 60.00 $ 20.00 $80.00

April $ 60.00 $ 23.75 $83.75

May $ 60.00 $ 26.25 $86.25

June $ 60.00 $ 13.75 $73.75

Total $ 360.00 $ 121.25 $ 481.25

Part-Period Balancing

(B)Compute the total inventory costs if you were to use the Part-Period Balancing Heuristic;
 Month January February March April May June
Expected
18 12 16 19 21 11
Attendees

Iteration 1.1: January

Ordering Cost: $60

Holding Cost: units

9 units x $2.5 = $22.5

Iteration 1.2: January

The demand for January is 18 units, and that for February is 12 units. If an order of 30 units
were placed at the beginning of January, the following costs would be incurred: Ordering Cost:
$60

Holding Cost: units

units
(21 units + 6 units) x $2.5 = $67.5
For Iteration 1.1, the holding cost for ordering 18 units in January is $22.5.
𝐶=|$60-$22.5|=$37.5
For Iteration 1.2, the holding cost for ordering 30 units in January is $67.5.
𝐶=|$60-$67.5|=$7.5
Parameters Jan Jan + Feb
𝐶 37.5 7.5
Q 18 30
Therefore, conclude that it is economical to place an order for 30 units in January, which
will help meet the demand for January and February.
Iteration 2.1: March

Ordering Cost: $60

Holding Cost: units

8 units x $2.5 = $20

Iteration 2.2: March

The demand for March is 16 units, and that for April is 19 units. If an order of 35 units
were placed at the beginning of March, the following costs would be incurred: Ordering
Cost: $60

Holding Cost: units

units
(27 units + 9.5 units) x $2.5 = $91.25
For Iteration 2.1, the holding cost for ordering 16 units in March is $20.
𝐶=|$60-$20|=$40
For Iteration 2.2, the holding cost for ordering 35 units in March is $91.25.
𝐶=|$60-$91.25|=$31.25
Parameters Mar Mar+
Apr
𝐶 40 31.25
Q 16 35
Therefore, conclude that it is economical to place an order for 35 units in March, which
will help meet the demand for March and April.

Iteration 3.1: May Ordering

Cost: $60

Holding Cost: = 10.5 units

10.5 units x $2.5 = $26.25
Iteration 3.2: May

The demand for May is 21 units, and that for June is 11 units. If an order of 32 units were
placed at the beginning of May, the following costs would be incurred: Ordering Cost: $60

Holding Cost: units

units
(21.5 units + 5.5 units) x $2.5 = $67.5
For Iteration 3.1, the holding cost for ordering 21 units in May is $26.25.
𝐶=|$60-$26.25|=$33.75
For Iteration 3.2, the holding cost for ordering 32 units in May is $67.5.
𝐶=|$60-$67.5|=$7.5
Parameters May May + Jun
𝐶 33.75 7.5
Q 21 32
Therefore, conclude that it is economical to place an order for 32 units in May, which
will help meet the demand for May and June.
Solution Summary:
Holding
Month Ordering Quantity Ordering Cost Total Cost
Cost

January 30 $60 $67.50 $127.50

February

March 35 $60 $91.25 $151.25

April

May 32 $60 $67.50 $127.50

June

Total $180 $226.25 $406.25

Silver-Meal Heuristic

(C)Compute the total inventory costs if you were to use the Silver-Meal Heuristic;

Month January February March April May June

Expected
18 12 16 19 21 11
Attendees

Iteration 1.1: January

Ordering Cost: $60 Total Inventory Cost: $60+ $22.5= $82.5

Holding Cost: = 9 units Per Period Cost (PPC):

9 units x $2.5 = $22.5

Iteration 1.2: January-

February Total Inventory Cost: $60 + $67.5= $127.5
Ordering Cost: $60
Per Period Cost (PPC):
Holding Cost: units

units
(21 units + 6 units) x $2.5 =
$67.5

Iteration 1.3: January-March

Ordering Cost: $60 (37 units + 22 units + 8 units) x $2.5 = $167.5

Holding Cost: = 37 units Total Inventory Cost: $60 + $167.5= $227.5

= 22 units Per Period Cost (PPC):

= 8 units
At this stage, the PPC for order horizon January–February–March is greater than the PPC for
January and February. Based on the Silver-Meal heuristic, conclude that it is optimal to place
one order of 30 units at the beginning of January.
Iteration 2.1: March
Ordering Cost: $60 Total Inventory Cost: $60+ $20= $80
Per Period Cost (PPC): = $80
Holding Cost: = 8 units
8 units x $2.5 = $20

Iteration 2.2: March-April

Total Inventory Cost: $60+ $91.25=
Ordering Cost: $60 $151.25
Holding Cost: units Per Period
Cost units (PPC):

(27 units + 9.5 units) x $2.5 = $91.25

Iteration 2.3: March-May

Ordering Cost: $60 (48 units + 30.5 units + 10.5 units) x $2.5 = $222.5 Holding Cost:

units Total Inventory Cost: $60 + $222.5= $282.5

units Per Period Cost (PPC):

units
At this stage, the PPC for order horizon March-April-May is greater than the PPC for March
and April. Based on the Silver-Meal heuristic, conclude that it is optimal to place one order of
35 units at the beginning of March.

Iteration 3.1: May

Ordering Cost: $60 Total Inventory Cost: $60+ $26.25= $86.25
Holding Cost: = 10.5 units Per Period Cost (PPC):
 10.5 units x $2.5 = $26.25

Iteration 3.2: May-June

Total Inventory Cost: $60 + $67.5=
Ordering Cost: $60 $127.5
Holding Cost: units Per Period Cost (PPC):
.5 units

(21.5 units + 5.5 units) x $2.5 = $67.5

Since the PPC for the order horizon of May and June took together is less than the PPC for the
order horizon for May alone, the Silver-Meal heuristic suggests that it is economical to place an
order for 32 units at the beginning of May.

Solution Summary:
Holding
Month Ordering Quantity Ordering Cost Total Cost
Cost

January 30 $60 $67.50 $127.50

February

March 35 $60 $91.25 $151.25

April

May 32 $60 $67.50 $127.50

June

Total $180 $226.25 $406.25

Least Unit Cost Heuristic

(D)Compute the total inventory costs if you were to use the least unit cost heuristic

Month January February March April May June

Expected
18 12 16 19 21 11
Attendees
Iteration 1.1: January
Ordering Cost: $60 Total Inventory Cost: $60+ $22.5= $82.5
Holding Cost: = 9 units Per Unit Cost (PUC):
9 units x $2.5 = $22.5

Iteration 1.2: January-February

Ordering Cost: $60 Total Inventory Cost: $60 + $67.5= $127.5

Per Unit Cost (PUC):

Holding Cost: = 21 units

= 6 units
(21 units + 6 units) x $2.5 = $67.5

Iteration 1.3: January-March

(37 units + 22 units + 8 units) x $2.5 =
Ordering Cost: $60 $167.5

Holding Cost: = 37 units Total Inventory Cost: $60 + $167.5= $227.5

= 22 units Per Unit Cost (PUC):

= 8 units
The PUC for order horizon January-February-March is greater than the PUC of January and
February. Therefore, the optimal order quantity is the order quantity for January and February,
which is 30 units.

Iteration 2.1: March

Ordering Cost: $60 Total Inventory Cost: $60+ $20= $80
Iteration 2.2: March-April
Holding Cost: = 8 units 8
units x $2.5 = $20 Ordering Cost: $60
Holding Cost: = 27 units
= 9.5 units
(27 units + 9.5 units) x $2.5 = $91.25 Total Inventory Cost: $60+ $91.25=
$151.25
Iteration 2.3: March-May Per Unit Cost (PUC):

Per Unit Cost (PUC): = $5

(21.5 units + 5.5 units) x $2.5 = $67.5 Per

Holding Cost: = 10.5 units
Unit Cost (PUC):
10.5 units x $2.5 = $26.25

Iteration 3.2: May-June

Ordering Cost: $60

Total Inventory Cost: $60 + $67.5= $127.5
Holding Cost: = 21.5 units
Per Period Cost (PPC):
= 5.5 units
Therefore, the optimal order quantity is the order quantity for April-May, which is 32 units.
OrderingSummary:
Solution Cost: $60 (48 units + 30.5 units + 10.5 units) x $2.5 = $222.5
Holding
Month
Holding Cost: Ordering Quantity
= 48 units Ordering Cost
Total Inventory + $222.5=Total
Cost: $60Cost Cost
$282.5
January 30 $60 $67.50 $127.50
= 30.5 units Per Unit Cost (PUC):
February
= 10.5 units
March 35 $60 $91.25 $151.25
The PUC for order horizon March-April-May is greater than the PUC of March and
April. April
Therefore, the optimal order quantity is the order quantity for March and April, which
is 35 units.
May 32 $60 $67.50 $127.50
Iteration 3.1: May
Ordering
JuneCost: $60 Total Inventory Cost: $60+ $26.25= $86.25

Total $180 $226.25 $406.25