Concept explainers
a)
To explain: The way (1), (2), and (3) changes as the setup cost ‘k’ decreases by 10%.
Inventory and supply chain models:
The functions of inventory and supply chain are one of the most important business decision areas for an organization. The first important aspect of these concepts is to have adequate inventory on hand. The second important aspect is to carry a little amount of inventory as possible.
a)
Explanation of Solution
The economic order quantity (EOQ) is given by the formula:
The EOQ formula is substituted in the expression for annual holding cost and annual ordering cost to get the following result:
The time between orders is given by:
The values of (1), (2), and (3) are multiplied by
b)
To explain: The way (1), (2), and (3) changes if the annual demand doubles.
b)
Explanation of Solution
The economic order quantity (EOQ) is given by the formula:
The EOQ formula is substituted in the expression for annual holding cost and annual ordering cost to get the following result:
The time between orders is given by:
The values of (1), (2), and (3) are multiplied by
c)
To explain: The way (1), (2), and (3) changes if the cost of capital increases by 10%.
c)
Explanation of Solution
The economic order quantity (EOQ) is given by the formula:
The EOQ formula is substituted in the expression for annual holding cost and annual ordering cost to get the following result:
The time between orders is given by:
Since
Equation (2) is multiplied by
Equation (3) is multiplied by
Hence, the values change in such a way when the cost of capital increases by 10%.
d)
To explain: The way (1), (2), and (3) changes as the changes of setup cost decreasing by 10%, doubling of annual demand, the increase in the cost of capital by 10% happen simultaneously.
d)
Explanation of Solution
The economic order quantity (EOQ) is given by the formula:
The EOQ formula is substituted in the expression for annual holding cost and annual ordering cost to get the following result:
The time between orders is given by:
Equation (1) is multiplied by
Equation (2) is multiplied by
Equation (3) is multiplied by
Hence, the above changes happen due to the simultaneous changes in the various values.
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Chapter 12 Solutions
Practical Management Science
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