Deck1 Flashcards
Main goals of linear programming
minimize expense, maximize profit
EOQ basic description
amount of inventory to order to minimize inventory costs
EPQ basic description
calculate size of production batches/lots, optimize production lot size
What kinds of things does LP try to maximise
Profits
Revenues
Returns
Utilization of machines
What kinds of things does LP try to minimize
Costs
Risks
Losses
What are requirements for a problem to be solved by LP?
linear objective function
continuous variables
constraints define scarcity of materials, resources
constraints expressed as linear inequalities
What are different constraint types?
maximum available budget
maximum available time on a machine
minimum levels of production or investment
Major categories LP can help with
Complexity
Unified Decision Making
Risk Assessment
when is sensitivity analysis performed
post optimization
dual price sensitivity analysis
aka shadow price
isolate RHS values on constraints
tells how much profit can be earned by incresaing a resource
improve most sensitive element
Range of Optimality test
considers LHS of objective function
determine how much each value in function can change before crossing any constraint boundaries
How is Simulation used
to model random events
types of applications simulation models are used for
Inventory policy Transportation bookings New product development waiting lines traffic flow
key similarity between linear programming and simulation
Risk analysis
Another name for running a simulation model that would be used to predict/determine risk impact
What if scenario
3 categories of inventory costs
ordering (setup) - costs to buy, incl. logisitics
shortage (stockout) - costs from not having enough
carrying (holding) - costs to store
types of inventory accounts
raw/packaging - parts, raw ingredients, packaging
finished goods
work in process (WIP) - in between raw and finished
In Transit
Inventory Turns
COGS/Average Inventory # times inventory turns over in a year
Inventory Days Coverage
(Average Inventory/Cost of Goods Sold) x 365
365/Inventory Turns
average number of days company had inventory before it’s sold
ABC classification
practice for dealing with inventory complexity
A - fast movers
B - meduium movers
c - slow movers
Factors used to determine how much to order and how often for items ordered from a supplier
Demand
Cost of item
Ordering costs
Holding costs
Factors used to determine how much to order and how often for items ordered from a supplier
Demand
Setup
Rate of Production
Holding
Annual Holding cost
Average Inventory Level x (holding cost/unit/year)
(EOQ/2)H
Annual Ordering cost
Annual demand / order quantity*cost per order
(D/EOQ)*O
Total Inventory Cost
holding cost + ordering cost
EOQ
used to minimize inventory costs for purchased goods
EPQ
used to minimize inventory costs for manufactured goods
EOQ formula
sqrt((2DO)/H)
D - annual demand
O - cost to place order
H = annual holding cost
EPQ formula
sqrt((2DSR/H(r-d))
S - Setup costs
R - rate of production
demand and production must be over same time frame
production rate in relation to demand
production rate is greater
assumptions of EOQ
product arrives complete
arrives promptly after being ordered
assumptions of EOQ and EPQ
demand, holding, ordering, purchases costs known and constant
ROP and lead time
Reoder point - when more inventory needs to be ordered
lead time - time between order placement and delivery
total inventory costs formula
carrying + ordering + backorder costs
risks of too much inventory from bulk discount buying
increased carrying costs
product obsolescence
shift in product demand
formula for orders per year
Demand/EOQ
formula for average inventory
EOQ/2
formula for reorder point
demand per day * lead time
