Parameters when Shortages are Allowed

Here we list the parameters associated with single stage, deterministic inventory systems when shortages are allowed. All parameters are to be nonnegative. All time related parameters must use the same time dimension.

 Inventory The name appearing in B1 is the name for the example. Data Name The name appearing in B2 is used to name arrays on the worksheet. It is assigned through the add-in dialog. Type The type is determined by the options on the dialog. In this case it indicates that inventory has an infinite replenishment rate. Demand rate (D): This is the constant rate at which the product is withdrawn from inventory. (units / time) Production rate (P): This is the constant rate at which the product is added to inventory inventory during the production period. (units / time). The parameter is only used for finite production rate inventories. Setup cost (A): A common assumption is that the cost of placing an order cost consists of a fixed cost, that is independent of the amount ordered, and a variable cost that depends on the amount ordered. The fixed cost is called the setup cost and given in (\$). Product revenue (R): This is the unit revenue obtained when the product is sold. This used for the profit model, but not for the inventory cost model. (\$/unit). Product cost (C): This is the unit cost of purchasing the product as part of an order. The value is used in the profit calculation. The value of C is used to measure the investment in the item as it relates to holding cost. (\$/unit) Min Quantity (): This places a lower bound on the order quantity (unit) Max Quantity (): This places an upper bound on the order quantity (unit) Holding cost rate (i): This is discount rate or interest rate used to compute the inventory holding cost. The holding cost usually includes the lost investment income caused by having the asset tied up in inventory. This is not a real cash flow, but it is an important component of the cost of inventory. If C is the unit cost of the product, this component of the cost is Ci, where i is the holding rate. (%/unit-time) Other holding cost: The holding cost may also include the cost of storage, insurance, and other factors that are proportional to the amount stored in inventory and the time an item remains in inventory. In the following we use H as the holding cost per unit including both the lost investment income (Ci) and other holding cost. (\$/unit-time) Lead time (L): This is time interval between when an order is placed and when the inventory is replenished. (time) One of the following parameters must be provided depending on the model for shortage cost. Backorder Cost (): This is the cost for each unit of product that is backordered per unit of time required for delivery of the unit. (\$/unit-time) Fixed Shortage Cost (): This is a fixed charge that occurs whenever the event of shortage occurs during a cycle. The charge is independent of the number of shortages that occur or the duration of the shortage. (\$) Unit Shortage Cost (): This is a charge that occurs for each unit of shortage occurs during a cycle. The charge is independent of the duration of the shortage. (\$/unit) Lost Sales Cost (): This is a charge that occurs for each unit of lost sale. (\$/unit)

Operations Management / Industrial Engineering
Internet
by Paul A. Jensen