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# Example 11-1

## Example 11-1: ECONOMIC ORDER QUANTITY

Inputs
𝐸𝑂�=√(2𝐷𝑆/ℎ�
Demand/year, D = 12,000 EOQ = 980 )
Fixed cost per order, S= \$ 4,000 Days = 1.22
Cost per unit, C = \$ 500
Holding cost, h= 20%This worksheet shows the change in total cost with lot size. All costs are mapped
in the worksheet Example 11-1 Chart. The optimal lot size is calculated using
Equation 11.5 in Cell F4.
Order Size Increment = 30 To understand the impact of demand on lot size, change demand in Cell C4.
To undertsnad the impact of fixed cost S, change the entry in Cell C5.

## Lot Annual Annual Total

Size Order Cost Holding Cost Cost
200 \$ 240,000 \$ 10,000 \$ 250,000
230 \$ 208,696 \$ 11,500 \$ 220,196
260 \$ 184,615 \$ 13,000 \$ 197,615
290 \$ 165,517 \$ 14,500 \$ 180,017
320 \$ 150,000 \$ 16,000 \$ 166,000
350 \$ 137,143 \$ 17,500 \$ 154,643
380 \$ 126,316 \$ 19,000 \$ 145,316
410 \$ 117,073 \$ 20,500 \$ 137,573
440 \$ 109,091 \$ 22,000 \$ 131,091
470 \$ 102,128 \$ 23,500 \$ 125,628
500 \$ 96,000 \$ 25,000 \$ 121,000
530 \$ 90,566 \$ 26,500 \$ 117,066
560 \$ 85,714 \$ 28,000 \$ 113,714
590 \$ 81,356 \$ 29,500 \$ 110,856
620 \$ 77,419 \$ 31,000 \$ 108,419
650 \$ 73,846 \$ 32,500 \$ 106,346
680 \$ 70,588 \$ 34,000 \$ 104,588
710 \$ 67,606 \$ 35,500 \$ 103,106
740 \$ 64,865 \$ 37,000 \$ 101,865
770 \$ 62,338 \$ 38,500 \$ 100,838
800 \$ 60,000 \$ 40,000 \$ 100,000
830 \$ 57,831 \$ 41,500 \$ 99,331
860 \$ 55,814 \$ 43,000 \$ 98,814
890 \$ 53,933 \$ 44,500 \$ 98,433
920 \$ 52,174 \$ 46,000 \$ 98,174
950 \$ 50,526 \$ 47,500 \$ 98,026
980 \$ 48,980 \$ 49,000 \$ 97,980
1010 \$ 47,525 \$ 50,500 \$ 98,025
1040 \$ 46,154 \$ 52,000 \$ 98,154
1070 \$ 44,860 \$ 53,500 \$ 98,360
Example 11-1

## 1100 \$ 43,636 \$ 55,000 \$ 98,636

1130 \$ 42,478 \$ 56,500 \$ 98,978
Example 11-1 Chart

\$300,000

\$200,000
Cost

Holding Cost
\$150,000

\$100,000

\$50,000
Order Cost

\$-
200
260
320
380
440
500
560
620
680
740
800
860
920
980
1040
1100
1160
1220
1280
1340
1400
1460
1520
1580
1640
1700
1760
1820
1880
1940
2000
2060
2120
2180
2240
2300
2360
2420
2480
2540
2600
2660
2720
Order Quantity

## Annual Order Cost Annual Holding Cost Total Cost

Example 11-2

Example 11-2:

Inputs
Demand per year, D = 12,000 Required order cost / lot, S = \$ 166.7
Desired lot size, Q*= 200 S=
Cost per unit, C = \$ 500 (ℎ�(�^∗ )
Holding cost, h= 20% ^2)/2𝐷
Example 11-3

## Lot Sizing with Multiple Products Ordered and Delivered Seperately

Annual demand for Litepro, DL = 12,000
Annual demand for Medpro, DM = 1,200 The information for Table 11-1 is
Annual demand for Heavypro, DH = 120 contained in Cells A15 to F19.
Product specific ordering cost, sL = \$ 1,000
Product specific ordering cost, sM = \$ 1,000 To redo Examples 11-3, 11-4, 11-6 for different values
Product specific ordering cost, sH = \$ 1,000 of product specific ordering costs, change Cells D5-D7
on this worksheet to 300 (low product specific ordering costs)
Unit Cost, CL = \$ 500.00 and 3,000 (high product specific ordering costs). This allows a
Unit Cost, CM = \$ 500.00 comparison of the value of complete aggregation and
tailored aggregation on worksheets Example 11-4 and
Unit Cost, CH = \$ 500.00 Example 11-6.
Common order cost, S = \$ 4,000
Holding cost, h = 20%
Order each product independently (Example 11.3)
# orders/year EOQ Order Cost Holding Cost Total cost
Litepro 11.0 1,095 \$ 54,772 \$ 54,772 \$ 109,545
Medpro 3.5 346 \$ 17,321 \$ 17,321 \$ 34,641
Heavypro 1.1 110 \$ 5,477 \$ 5,477 \$ 10,954
\$ 77,570 \$ 77,570 \$ 155,140
Example 11-4

## Lot Sizing with Multiple Products Ordered and Delivered Together

Annual demand for Litepro, DL = 12,000
Annual demand for Medpro, DM = The information for Table 11-2 is
1,200 contained in Cells A15 to F19.
Annual demand for Heavypro, DH = 120
Product specific ordering cost, sL = \$ 1,000 �^∗ (�𝑒𝑙𝑙 𝐵17)=√((𝐷_𝐿 ℎ�_𝐿+𝐷_𝑀 ℎ�_𝑀+𝐷_𝐻
Product specific ordering cost, sM = \$ 1,000 ℎ�_𝐻)/(2𝑆^∗ ))
Product specific ordering cost, sH = \$ 1,000
Unit Cost, CL = \$ 500
Unit Cost, CM = \$ 500
Unit Cost, CH = \$ 500
Common order cost, S = \$ 4,000
Joint order cost, S* = \$ 7,000
Holding cost, h = 20%
# orders/year Order Size Order Cost Holding Cost Total cost
Litepro 9.75 1,230 \$ 61,512
Medpro 9.75 123 \$ 6,151
Heavypro 9.75 12.3 \$ 615
68,279 \$ 68,279 \$ 136,558
Example 11-5: Aggregation with capacity constraint

## Demand per product, Di 10000

Holding cost, h 20%
Unit cost per product, Ci \$ 50
Common order cost, S \$ 500
Supplier specific order cost, si \$ 100
Number of suppliers 4
Truck capacity 2,500

## Ignoring Capacity Constraint

Optimal order frequency/year, n* 14.91 �^∗ (�𝑒𝑙𝑙 𝐵14)=
Quantity ordered from each supplier 670.82 √((∑26_(𝑖=1)^4▒ 〖𝐷 _𝑖 ℎ�_𝑖 〗 )/
Total amount on truck 2,683.28 (2𝑆^∗ ))
Annual order cost \$ 13,416
Annual holding cost \$ 13,416

## With Capacity Constraint

Total amount on truck 2500
Quantity ordered from each supplier 625.00
Order frequency/year 16.00
Annual order cost \$ 14,400
Annual holding cost \$ 12,500

## Change the number of suppliers per truck in Cell B8 from

2 to 6 and see how the quantity order / supplier and the
optimal order frequency changes in Cells B22, 23
for the capacity constrained case.
�_𝑖 〗 )/
Example 11-6

## Lot Sizing with Multiple Products (Tailored Aggregation)

Annual demand for Litepro, DL = 12,000
Annual demand for Medpro, DM = 1,200 The information for Table 11-3 is contained in Cells A22 to F26.
Annual demand for Heavypro, DH = 120
As values of product specific order costs are changed in sheet
Product specific ordering cost, sL = \$ 1,000 Example 11-3, run Solver to get the optimal value of Cell C15.
Product specific ordering cost, sM = \$ 1,000
Product specific ordering cost, sH = \$ 1,000
Unit Cost, CL = \$ 500
Unit Cost, CM = \$ 500
Unit Cost, CH = \$ 500
Common order cost, S = \$ 4,000
Holding cost, h = 20%

## Solution Using 5-step Procedure

Step 1 Step 2 Step 3 Step 4, 5
ni ni mi ni
Litepro 11.0 24.5 1 11.47
Medpro 3.5 7.7 2 5.74
Heavypro 1.1 2.4 5 2.29

Table 11-3
# orders
/year Order Size
n Q Order Cost Holding Cost Total cost
Litepro 11.47 1,046 \$ 57,354 \$ 52,307 \$ 109,661
Medpro 5.74 209 \$ 5,735 \$ 10,461 \$ 16,197
Heavypro 2.29 52 \$ 2,294 \$ 2,615 \$ 4,909
\$ 130,767
Example 11-6

## sts are changed in sheet

ptimal value of Cell C15.

1500000
11400

1200000
10000
120
###

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