21-10-2016

CONSIDER MULTI PERIOD DEMAND

DYNAMIC LOT SIZING

There are various combinations possible !!

PERIOD
DEMAND

10

10 15 12 16 15 12 18

14

22

16

UNIT PRICE IS Rs 100

ORDERING COST IS Rs 150.00 Per Order
CARRYING COST IS Rs. 2 per unit per period

> Order :
Every period , Every two periods ,
Every three periods and so on
>Also find different combinations such as :
First order- periods 1 and 2, second order
periods 3,4 and 5 and so on
>But the impact on the total variable cost ( Ordering
cost + holding cost ) will be different
> The important condition is that shortages not allowed

What ordering options do we have ?

21-10-2016

DYNAMIC LOT SIZING ALGORITHMS ?

DYNAMIC LOT SIZING ALGORITHMS

Some of the commonly used methods:

EOQ
Lot for Lot
Least Unit Cost
Least Total Cost
Part Period Balancing
Period Order Quantity
Silver Meal I and II
Wagner Whitin

LEAST UNIT COST METHOD

DATA
Item cost Rs 4.00 per unit ;
Carrying cost H = 30 % per year
Ordering cost A = Rs 30.00 per order
Demand for 6 weeks given in Table;
Assume 50 Weeks in a year

CLARIFICATION
DATA AND CALCULATION
DEMAND
Units

WEEK
No
.

CUM
LOT
SIZE

EXCESS
WEEKS
INVENTORY CARRIED.
CARRIED
OVER

C.C
THE
LOT

CUM

OC

TC

UC

93

93

233

326

233

5.6

30

30

0.323

5.6

30

35.6

0.109

194

520

194

9.3

14.9

30

44.9

0.086

219

739

219

87

826

87

15.77

30.67

30

60.7

0.082 *

8.35

39.02

30

69.02

0.084

448

TC
= Total cost,
UC = Unit cost = TC / Lot Size
Cum.CC = Cumulative carrying cost
OC = Ordering cost

Sample calculation for week 4:

CC= 219 x 3 x4x (0.30/50) = 15.768 = 15.77
Cumulative .CC = 30.67
OC = 30.00
TC = 60.67
UC = 60.67/ 739 =0.082

The best order size is when UC is the minimum

That is when Q = 739
Note:
It is also possible to fix the order size as that quantity at
which the cumulative carrying cost is equal to ordering
cost

21-10-2016

PERIOD ORDER QUANTITY METHOD

Solution
STEPS
1) Find EOQ (Given as 2100 Units)
2) Find POQ
POQ In weeks
= 2100 / (15600/50) = 7 WEEKS
3) Order size is fixed as the demand of 7 weeks

Example:
Weekly Demand is given in Table .
It also given that, Annual usage is 15600,
EOQ = 2100 ,
There are 50 weeks in a year and
The order lead time is 2 weeks.
FIND POQ
Steps
Find EOQ using the data given
Find POQ
Use POQ as the Order Quantity

Order for 2025, that is (20 + 400 + 270 + 190 + 605 + 360 + 180 =
2025)
DETAILS ?

PART PERIOD BALANCING METHOD

WEEK

10

11

GROSS
REQUIREMENT.

510

115

320

400

270

190

605

360

180

410

335

OPEN ORDER

925

NET
REQUIREMENT

20

400

270

190

605

360

180

410

335

ORDER DUE

ORDER START

2025

2025

STEP
Accumulate demand, period by period, until
carrying cost for cumulative demand exceeds
order cost. If it occurs at period k
There are two possibilities:
a) check if carrying cost through period k is
closer to ordering cost, than carrying cost
through period k-1,
Then, the order quantity will be cumulative
Demand through period k
b) Otherwise the order quantity should cover
demand through period k-1

21-10-2016

CALCULATION
PERIOD
DEMAND

10

10 15 12 16 15 12 18

14

22

16

ORDERING COST IS Rs 150.00 Per Order

CARRYING COST IS Rs. 2 per unit per period

16

0.5

16.00

16.00

NO

5-15

16

16+15 15
=31

1.5

45.00

61.00

NO

6-12

31+12 12
=43

2.5

60.00

112.00
*

NO

7-18

43+18 18
=61

3.5

126.00

247.00

YES

18

18

0.5

18.00

18.00

NO

8-14

18+14 14
=32

1.5

42.00

60.00

NO

9-22

32+22 22
=54

2.5

110.00

170.00
*

YES

Period
and
demand

Possible
Lot
Size

Stock
carried

Average
Number of
Periods for
which (a) is
held

1-10

10

2-15

Added
Carrying
Cost

Cum.
carrying
Cost

Is (c) greater
Than
Rs150?

= (a)

= (b)

10

0.5

10.00

= (c)

If yes, stop

10.00

10+15
=25

15

1.5

NO

45.00

55.00

NO

3-12

25+12
=37

12

2.5

60.00

115.00* NO

4-16

37+16
=53

16

3.5

112.00

227.00

=(a)x(b)x2

YES

RESULTS :
The first order size is 37 as 150 is closer
to 115 than 227.
The second order size is 43 as 150 is
closer to 112 than 247
The third order size is 54 as 150 is closer
to 170 than 60.