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Chapter 4: Multi-period Problem * Dr. YANG Ruina Agenda Multiple Order Opportunities -- Continuous Review Policy -- Periodic Review Policy Multi-period Problem Continuous Review Policy inventory is reviewed continuously an order is placed when the inventory reaches a particular level or reorder point inventory can be continuously reviewed (computerized inventory systems are used) Periodic Review Policy inventory is reviewed at regular intervals appropriate quantity is ordered after each review it is impossible or inconvenient to frequently review inventory and place orders if necessary Inventory Level Inventory Position Continuous Review Policy Daily demand is random and follows a normal distribution. Every time the distributor places an order from the manufacturer, the distributor pays a fixed cost, K, plus an amount proportional to the quantity ordered. Inventory holding cost is charged per item per unit time. Inventory level is continuously reviewed, and if an order is placed, the order arrives after the appropriate lead time. If a customer order arrives when there is no inventory on hand to fill the order (i.e., when the distributor is stocked out), the order is lost. The distributor specifies a required service level. AVG = Average daily demand faced by the distributor STD = Standard deviation of daily demand faced by the distributor L = Replenishment lead time from the supplier to the distributor in days h = Cost of holding one unit of the product for one day at the distributor α = service level. This implies that the probability of stocking out is 1 - α Continuous Review Policy Inventory Level Over Time Inventory level before receiving an order = Inventory level after receiving an order = Average Inventory = Inventory level as a function of time in a (Q,R) policy Continuous Review Policy: Example A distributor of TV sets that orders from a manufacturer and sells to retailers Fixed ordering cost = $4,500 Cost of a TV set to the di
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