Page 253 - DMGT501_OPERATIONS_MANAGEMENT
P. 253

Unit 10: Economic Order Quantity




                          D  = Forecast average daily demand                                    Notes

                          z  = Number of standard deviations for a specified service probability
                       σ     = Standard deviation of demand over the review and lead time
                        T + L
                          I  = Current inventory level (includes items on order)
                               Figure 10.6: Fixed-time Period Quantity System













































          Reorders are placed at the time of review ‘T’, and the safety stock has to be a function of the level
          of service desired and lead time. Accordingly, the quantity that must be reordered is:
                                        Safety Stock = z* σ
                                                      T + L




















                                           LOVELY PROFESSIONAL UNIVERSITY                                   247
   248   249   250   251   252   253   254   255   256   257   258