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Inventory planning & control under uncertainty
The basic EOQ model assumes that all the parameters (elements) in the model are certain (i.e. can be predicted precisely in advance). Such parameters are:
(a) Demand or usage of stocks(b) Lead times.(c) Holding costs per unit, ordering costs per order and costs per unit.
In reality however, stock demand, supplies lead times and cost date are not known with certainty. Accordingly to make the models applicable to real situations we must consider uncertainty when planning for inventory levels.
To protect itself from conditions of uncertainty, a firm will maintain a level of safety stocks for raw materials, work-in-growth and completed goods stocks. Therefore safety stocks are the quantity of stocks which are carried in excess of the expected use throughout the lead time to give a cushion against running out of stocks. Thus the reorder point is computed as safety stock plus the average usage during the lead time
i.e. reorder point = Average usage during lead time + safety (buffer) stock.
The assignment model Consider the situation of assigning m jobs (or workers) to n machines. A job i(= 1,2,3 ...m) when assigned to machine j(= 1,2,3 ...n) acquires a cost Cij.
Stine Company uses a job order cost system. On May 1, the company has a balance in Work in Process Inventory of $3,730 and two jobs in process: Job No. 429 $2,150, and Job No. 430
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