Consider the continuous review policy (Q, R). Explain why the expected level of inventory before receiving the order is : 𝑧× 𝑆𝑇𝐷 ×√𝐿 while the expected level of inventory immediately after receiving the order is: 𝑄 +𝑧×𝑆𝑇𝐷 × √𝐿 Answer 1:
According to the continuous review policy, the inventory is continuously reviewed and an order is placed when the inventory level reaches the Reorder level R which is equal to the daily average demand times the lead time plus the safety stock: AGV x L + 𝑧× 𝑆𝑇𝐷 ×√𝐿, during the lead time only the quantity AVG x L is used, and if the order is received exactly at the end of the lead time L, the expected level inventory after receiving the order is the new order quantity Q plus the safety stock 𝑧× 𝑆𝑇𝐷 ×√𝐿 Consider the base-stock in periodic review. Explain why the expected level of inventory after receiving an order is equal to 𝑟 ×𝐴𝑉𝐺 +𝑧 ×𝑆𝑇𝐷 × √𝑟 +𝐿 while the expected level of inventory before an order arrives is 𝑧× 𝑆𝑇𝐷 ×√𝑟 + 𝐿 . According the periodic review policy, the inventory level is reviewed at a regular basis and an order is placed right after the review to reach the Base-stock level, the daily average demand during the period r, which is the period between 2 consecutive reviews, is 𝑟 ×𝐴𝑉𝐺, and from the order point until the next receiving the daily average demand is L ×𝐴𝑉𝐺, thus, the safety stock which represent a buffer during the lead time is 𝑧 ×𝑆𝑇𝐷 × √𝑟 +𝐿 ( the time cycle is L+r). Consequently At the end of the lead time and before the reception of the order the inventory level equals to the safety stock 𝑧 ×𝑆𝑇𝐷 × √(𝑟 +𝐿).After the order arrives, the expected inventory level which is supposed to cover the demand during the review period r reaches again the based stock level minus the daily average used during the lead time, which is ( L+𝑟) ×𝐴𝑉𝐺 +𝑧 ×𝑆𝑇𝐷 × √(𝑟 +𝐿)-L.AVG= 𝑟 ×𝐴𝑉𝐺 +𝑧 ×𝑆𝑇𝐷 × √𝑟 +𝐿 3-Imagine that you operate a department store. List five products you sell, and order them from lowest target...
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