School of Industrial Engineering & Management (IEM) Inventory Management

International University, VNU-HCM Instructor: Dr. Nguyen Van Hop

Homework 3_Chapter 3

NGUYỄN THỊ NHƯ QUỲNH

Student’s ID: IELSIU19252

Problem 1: (6.2/224 Silver et.al. (1998) Book)

The demand pattern for another type of filter is:
Jan. Feb. Mar. Apr. May June
18 31 23 95 29 37
July Aug. Sept. Oct. Nov. Dec.
50 39 30 88 22 36

Those filters cost the company $4.75 each; ordering and carrying costs are $35 and 0.24 $/$/year
respectively. The variability coefficient equals 0.33. Use the Silver – Meal heuristics to determine the
sizes and timing of replenishments of stock.
Variability coefficient: A parameter to determine when to use heuristics method, when demand pattern
having variability exceeds some threshold value, it makes sense to change to a heuristic. It is
Variability coefficient (VC). In particular, if VC <0.2, Use simple EOQ. Otherwise, Use heuristic.

σD
VC = .
D́2

Sequential
t Dt At ct ht
number
1 Jan 18 $35 $4.75 $1.14
2 Feb 31 $35 $4.75 $1.14
3 Mar 23 $35 $4.75 $1.14
4 Apr 95 $35 $4.75 $1.14
5 May 29 $35 $4.75 $1.14
6 June 37 $35 $4.75 $1.14
7 July 50 $35 $4.75 $1.14
8 Aug 39 $35 $4.75 $1.14
9 Sept 30 $35 $4.75 $1.14
10 Oct 88 $35 $4.75 $1.14
11 Nov 22 $35 $4.75 $1.14
 12 Dec 36 $35 $4.75 $1.14

 Set t = 1 (Beginning from January)

Z1,1 = 35 + 4.75*18 = 120.5
Z1,2 = (35 + 4.75*(18+31) + 1.14*31)/2 = 151.545 > 120.5
 Q1 = D1 = 18
 Set t = t’ = 2 (Beginning from February)
Z2,2 = 35 + 4.75*31 = $182.25
Z2,3 = (35 + 4.75*(31+23) + 1.14*23)/2 = 158.86
Z2,4 = (35 + 4.75*(31+23+95) + 1.14*(23+95) + 1.14*95)/3 = 328.52 > 158.86
 Q2 = D2 + D3 = 31 + 23 = 54
 Set t = t’ = 4 (Beginning from April)
Z4,4 = 35 + 4.75*95 = 486.25
Z4,5 = (35 + 4.75*(95+29) + 1.14*29)/2 = 328.53
Z4,6 = (35 + 4.75*(95+29+37) + 1.14*(29+37) + 1.14*37)/3 = 305.72
Z4,7 = (35 + 4.75*(95+29+37+50) + 1.14*(29+37+50) + 1.14*(37+50) + 1.14*50)/4 = 331.42 >305.72
 Q4 = D4 + D5 + D6 = 95 + 29 + 37 = 161
 Set t = t’ = 7 (Beginning from July)
Z7,7 = 35 + 4.75*50 = 272.5
Z7,8 = (35 + 4.75*(50+39) + 1.14*39)/2 = 251.105
Z7,9 = (35 + 4.75*(50+39+30) + 1.14 *(39+30) + 1.14*30)/3 = 237.703
Z7,10 = (35 + 4.75*(50+39+30+88) + 1.14*(39+30+88) + 1.14*(30+88) + 1.14*88) = 358.02 >237.703
 Q7 = D7 + D8 + D9 = 50 + 39 + 30 = 119
 Set t = t’ = 10 (Beginning from October)
Z10,10 = 35 + 4.75*88 = 453
Z10,11 = (35 + 4.75*(88+22) + 1.14*22)/2 = 291.29
Z10,12 = (35 + 4.75*(88+22+36) + 1.14*(22+36) + 1.14*36)/3 = 278.55
 Q10 = D10 + D11 + D12 = 88 + 22 + 36 = 146
In conclusion, timing of replenishment of stock:
Month 1 2 3 4 5 6 7 8 9 10 11 12
Q 18 54 0 161 0 0 119 0 0 146 0 0
 Problem 2: (6.10/224 Silver et.al. (1998) Book)
Consider a company facing a demand pattern and costs as follows:
Month Sequential Requirements
number (units)
January 1 20
February 2 40
March 3 110
April 4 120
May 5 60
June 6 30
July 7 20
August 8 30
September 9 80
October 10 120
November 11 130
December 12 40
Total 800
Given: Fixed ordering cost A = $25.00, carrying cost r (per month) = $0.05 (Carrying costs are very
high in this industry) and unit variable cost v = $4.00.
Using a “three-month” decision rule, the replenishment schedule and associated costs are as follows:
Month 1 2 3 4 5 6 7 8 9 10 11 12 Total
Starting
0 150 110 0 90 30 0 110 80 0 170 40  
inventory
Replenishmen
170 0 0 210 0 0 130 0 0 290 0 0 800
t
Requirements 20 40 110 120 60 30 20 30 80 120 130 40 800
Ending
150 110 0 90 30 0 110 80 0 170 40 0 780
inventory
Total replenishment costs: $110.00
Total carrying costs: $156.00
Total replenishment + carrying: $256.00
a/ Construct a replenishment schedule and calculate the associated costs using the Fixed Economic
Order Quantity method.
b/ Repeat using the Wagner-Whitin algorithm.
c/ Repeat using the Silver – Meal heuristic.
d/ Repeat using the Least Unit cost method.
e/ Repeat using the Part-period balancing method.
f/ Repeat using the Periodic Ordering Quantity method.
 Sequential number Requirements At ct ht
1 20 $25 $4 $0.20
2 40 $25 $4 $0.20
3 110 $25 $4 $0.20
4 120 $25 $4 $0.20
5 60 $25 $4 $0.20
6 30 $25 $4 $0.20
7 20 $25 $4 $0.20
8 30 $25 $4 $0.20
9 80 $25 $4 $0.20
10 120 $25 $4 $0.20
11 130 $25 $4 $0.20
12 40 $25 $4 $0.20
Total 800      
a)

b) Repeat using the Wagner-Whitin algorithm.

Step 1 In order 1 A1 = 25 z1*= 25 j1* = 1
In order 1 A1 + h1*D2 = 33
Step 2 z2* = 33 j2* = 1
In order 2 z1* + A2 = 50
In order 1 A1 + h1*D2 + (h1+h2)*D3 = 77
Step 3 In order 2 z1* + A2 + h2*D3 = 72 z3* = 58 j3* = 3
In order 3 z2* + A3 = 58
In order 3 z2* + A3 + h3*D4 = 82
Step 4 z4* = 82 j4* = 3
In order 4 z3* + A4 = 83
In order 3 z2* + A3 + h3*D4 + (h3+h4)*D5 = 106
Step 5 In order 4 z3* + A4 + h4*D5 = 95 z5* = 95 j5* = 4
In order 5 z4* + A5 = 107
In order 4 z3* + A4 + h4*D5 + (h4+h5)*D6 = 107
Step 6 In order 5 z4* + A5 + h5*D6 = 113 z6* = 107 j6* = 4
In order 6 z5* + A6 =120
In order 4 z3* + A4 + h4*D5 + (h4+h5)*D6 + (h4+h5+h6)*D7 = 119
In order 5 z4* + A5 + h5*D6 + (h5+h6)*D7 = 121
Step 7 z7* = 119 j7* = 4
In order 6 z5* + A6 + h6*D7 = 124
In order 7 z6* + A7 = 132
z3* + A4 + h4*D5 + (h4+h5)*D6 + (h4+h5+h6)*D7
In order 4
+ (h4+h5+h6+h7)*D8= 143
Step 8 In order 5 z4* + A5 + h5*D6 + (h5+h6)*D7 + (h5+h6+h7)*D8 =139 z8* = 136 j8* = 6
In order 6 z5* + A6 + h6*D7 + (h6+h7)*D8 =136
In order 7 z6* + A7 + h7*D8 =138
In order 8 z7* + A8 =144
Step 9 In order 6 z5* + A6 + h6*D7 + (h6+h7)*D8 + (h6+h7+h8)*D9 = 184 z9* = 160 j9* = 8
In order 7 z6* + A7 + h7*D8 + (h7+h8)*D9 = 170
In order 8 z7* + A8 + h8*D9 = 160
 In order 9 z8* + A9 = 161
In order 8 z7* + A8 + h8*D9 + (h8+h9)*D10 = 208
Step 10 In order 9 z8* + A9 + h9*D10 = 185 z10* = 185 j10* = 9,10
In order 10 z9* + A10 = 185
In order 9 z8* + A9 + h9*D10 + (h9+h10)*D11 =237
Step 11 In order 10 z9* + A10 + h10*D11 = 211 z11* = 210 j11* = 11
In order 11 z10* + A11 = 210
In order 11 z10* + A11 + h11*D12 = 218
Step 12 z12* = 218 j12* = 11
In order 12 z11* + A12 =235

c) Repeat using the Silver – Meal heuristic.

 Set t = 1 (Beginning from January)
Z1,1 = 25 + 4*20 = 105
Z1,2 = (25 + 4*(20+40) + 0.2*40) /2= 136.5 >105
 Q1 = D1 = 20
 Set t = t’ = 2 (Beginning from February)
Z2,2 = 25 + 4*40 = 185
Z2,3 = (25 + 4*(40+110) + 0.2*110) /2= 323.5 > 185
 Q2 = D2 = 40
 Set t = t’ = 3 (Beginning from March)
Z3,3 = 25 + 4*110 = 465
Z3,4 = (25 + 4*(110+120) + 0.2*120)/2 = 484.5 > 465
 Q3 = D3 = 110
 Set t = t’ = 4 (Beginning from April)
Z4,4 = 25 + 4* 120 = 505
Z4,5 = (25 + 4*(120+60) + 0.2*60)/2 = 378.5
Z4,6 = (25 + 4*(120+60+30) + 0.2*(60+30+30))/3 = 296.3
Z4,7 = (25 + 4*(120+60+30+20) + 0.2*(60+30+20+30+20+20))/4 = 245.25
Z4,8 = (25 + 4*(120+60+30+20+30) + 0.2*(60+30+20+30+30+20+30+20+30+30))/5 = 225
Z4,9=(25+4*(120+60+30+20+30+80)+0.2*(60+30+20+30+80+30+20+30+80+20+30+80+30+80+
80))/6 = 254.17 >225
 Q4 = D4+D5 +D6 +D7+D8 = 260
 Set t = t’ = 9 (Beginning from September)
Z9,9 = 25 + 4*80 = 345
Z9,10 = (25 + 4*(80+120) + 0.2*120)/2 = 424.5 >345
 Q9 = D9 = 80
 Set t = t’ = 10 (Beginning from October)
Z10,10 = 25 + 4*120 = 505
Z10,11 = (25 + 4*(120+130) + 0.2*130)/2 = 525.5 >505
 Q10 = 120
 Set t = t’ = 11 (Beginning from November)
Z11,11 = 25 + 4*130 = 545
Z11,12 = (25 + 4*(130+40) + 0.2*40)/2 = 356.5
 Q11 = D11 +D12 = 170

d) Repeat using the Least Unit cost method.

e) Repeat using the Part-period balancing method.
f) Repeat using the Periodic Ordering Quantity method.
Problem 3: (6.17/224 Silver et.al. (1998) Book)
Consider a company facing a demand pattern and costs as follows:
Month Sequential number Requirements
(units)
January 1 350
February 2 200
March 3 0
April 4 150
May 5 500
June 6 600
July 7 450
August 8 350
September 9 200
October 10 0
November 11 150
December 12 200
Total 3150
Given the fixed ordering cost A = $50, carrying cost r (per month) $1.05, unit variable cost v = $65.00/
unit.
a/ Construct a replenishment schedule and calculate the associated costs using the Fixed Economic
Order Quantity method.
b/ Repeat using the Wagner – Whitin algorithm.
c/ Repeat using the Silver – Meal heuristic.
d/ Repeat using the Least Unit Cost method.
e/ Repeat using the Part – period Balancing method.
f/ Repeat using the Period Ordering Quantity method.

b/ Repeat using the Wagner – Whitin algorithm.

Sequential number t Dt At ct ht
1 Jan 350 $50 $65 $68.25
2 Feb 200 $50 $65 $68.25
3 Mar 0 $50 $65 $68.25
4 Apr 150 $50 $65 $68.25
5 May 500 $50 $65 $68.25
6 June 600 $50 $65 $68.25
7 July 450 $50 $65 $68.25
8 Aug 350 $50 $65 $68.25
9 Sept 200 $50 $65 $68.25
10 Oct 0 $50 $65 $68.25
 11 Nov 150 $50 $65 $68.25
12 Dec 200 $50 $65 $68.25
Total   3150      

Step 1 In order 1 A1 = 50 Z1* = 50 J1* = 1

In order 1 A1 +h1*D2 = 13,700
Step 2 Z2* = 100 J2* = 2
In order 2 z1* + A2 = 100
In order 2 z1* + A2 + h2*D3 =
Step 3
In order 3 z2* + A3 =
Step 4 In order 3
Step 4 In order 4
Step 5 In order 3
Step 5 In order 4
In order 5
Step 6 In order 4
Step 6 In order 5
In order 6
Step 7 In order 4
In order 5
Step 7 In order 6
Step 8 In order 7
In order 4
In order 5
Step 8 In order 6
In order 7
Step 9 In order 8
In order 6
In order 7
Step 9 In order 8
Step 10 In order 9
In order 8
Step 10 In order 9
In order 10
Step 11 In order 9
Step 11 In order 10
In order 11
Step 12 In order 11
Step 12 In order 12 210+25 =235

c/ Repeat using the Silver – Meal heuristic.

d/ Repeat using the Least Unit Cost method.
e/ Repeat using the Part – period Balancing method.
f/ Repeat using the Period Ordering Quantity method.
Problem 4:
A component used in a manufacturing facility is ordered from an outside supplier.
The component is used in a variety of finished items and therefore the demand is high.
Forecast demand (in thousands) over the next 8 weeks is:

Week 1 2 3 4 5
Deman 21 33 29 15 9
d

Each component costs 70 cents and the inventory carrying charge rate is 0.56 cents
($0.0056) per unit per week. The fixed order cost is $300. Assume instantaneous delivery.
What is the ordering policy recommended by DP algorithm?