3/21: the quantity discount model roll call, return homework, collect homework review eoq model...
TRANSCRIPT
3/21: The Quantity Discount Model• Roll call, return homework, collect homework
• Review EOQ model
• Quantity Discount Model
• Small group exercise
• Homework
Review EOQ Model
• TC = Ann. Hold. Cost + Ann. Order Cost
• Ideal OrderQuantity(EOQ)
• Cycle Time
hC2
QAHC oC
Q
DAOC
h
o
C
CD2*Q
D
*Qyear/daysworkingT
EOQ Model: Curves• The EOQ will be the quantity that minimizes the
overall annual cost.
Holding cost curveMinimum
annual cost
Ann
ual C
ost
Order Quantity
Setup cost curve
Combined curve:holding + setup.
Optimal order quantity
Quantity Discount Model• Often, there are price breaks for ordering greater
quantities of a product.
• The formulas used to determine the EOQ remain, but…
Q1 Q2 Q3
C1
C2
C3
Quantity Discount Model• Often, there are price breaks for ordering greater
quantities of a product.
• EX: Q1 < 1000 units C1 = $4.03 1000 <= Q2 < 2000 C2 =
$4.00 2000 <= Q3 C3 = $3.97
Q1 Q2 Q3
C1
C2
C3
Quantity Discount Model• Calculate the Q* for each price.
• If the Q* is out of the range of the price level, use the nearest point possible.
• Calculate the total cost of the system (not just inventory system) to see which is lowest.– Must include the cost of product to compare!
Unit Costs vs. Total Cost of System
$19,800.00
$19,900.00
$20,000.00
$20,100.00
$20,200.00
$20,300.00
$20,400.00
$20,500.00
$20,600.00
0 500 1000 1500 2000 2500 3000
Order Quantity
To
tal C
os
t o
f In
ve
nto
ry S
ys
tem
C1
C2
C3
Example• You order a product that has a price break
offered:– Order less than 1000 $4.03 / unit– Order 1000 to less than 2000 $4.00 / unit– Order 2000 or more $3.97 / unit
• Your annual holding cost rate is 10%
• Your cost per order is $5.00
• Your annual requirement is 5,000 units.
see spreadsheet
Group Exercise• You order a high-demand software package that
has a price break offered:– Order less than 5 $169.00 / unit– Order 5 to less than 50 5% discount / unit– Order 50 to less than 100 8% discount / unit– Order 100 or more 10% discount / unit
• Your annual holding cost rate is 30%
• Your cost per order is $ 5.00
• Your annual requirement is 2,500 units.
Homework (due 4/4)• Ch. 11 #20, 21, 22 (show your work)
• You can use Excel to do this, or do it by hand. TURN IT IN ON PAPER REGARDLESS on 4/4.
• No class next week – Holy Thursday. Happy Easter!