Supply_Chain_10.ppt

Supply Chain Management--Suqian Zha * Inventory Policy Decisions * Inventory Policy Decisions Inventory policy decisions (2) Basic pull inventory control Pull inventory control gives low inventory levels at stocking points because of its response to the demand and cost conditions particular to each stocking point. Single-Order Quantity It is suitable for perishable products one-time demand products. In order to find the most economic order size Q＊, we can appeal to marginal economic analysis. Q＊ is found at the point where the marginal profit on the next unit sould equals the marginal loss of not selling the next unit. The marginal profit per unit obtained by selling a unit is: Profit = Price per unit – Cost per unit The per-unit loss incurred by not selling a unit is Loss = Cost per unit – Salvage value per unit Considering the probability of a given number of units being sold, the expected profits and losses are balanced at this point. That is CPn (Loss) =(1-CPn) (Profit) CPn represents the cumulative frequency of selling at least n units of the product. CPn= profit / (profit+loss) A grocery store estimates that it will sell 100 pounds of its specially prepared potato salad in the next week. The demand destribution is normally distributed with a standard deviation of 20 pounds. The supermarket can sell the salad for 5.99 dollars per pound. It pays 2.5 dollars per pound for the ingredients. Since no preservatives are used, any unsold salad is given to charity at no cost. Please find the quantity that will maximize the profit. Example If demand is discrete, the order quantity may be between whole values. In such cases, we will round up Q to the next higher unit to ensure that at least CPn is met. An equipment repair firm wishes to order enough spare parts to keep a machine tool running throughout a trade show. The repairperson prices the parts at $95 each if needed for a repair. He pays $ 70 for each part. If all the parts are not needed, they may b