1Q Optimal (Q*)
sqroot(2DS/H)
2# of times to order a year
D/Q*
3# of days/weeks/months elapsed between two consecutive orders
Q*/D x # of days/weeks/months a year
4Cost of Orders per Year (annual ordering cost)
(D/Q*) x S
5Cost of Holding Inv per Year (annual holding cost)
(Q*/2) x H
6Total Annual Cost
Cost of Holding Inv per Year + Cost of Orders per Year (values should match if using Q*)
7Annual Cost to Carry Safety Stock
SS x H
8Reorder Point
ROP = (dbar x L) + SS
(dbar and L need to be same unit)
9Holding Cost Rate
H = C x i
10Avg Inv Within Firm
(Q*/2) + SS
11Avg Pipeline Inv
dbar x L
12Total Avg Inv Owned by Firm (pay upon ordering)
(Q*/2) + SS + (dbar x L)
13Total Avg Inv Owned by Firm (cash on delivery)
(Q*/2) + SS
14Rule #1
if avg inv increases, holding inv cost also increases
16Annual Purchase Cost
C x D
17D
demand rate (units/yr)
18C
cost of purchasing or producing a unit (dollars/(unit))
19S
setup cost or per order or per production run (dollars/order)
20H
annual holding cost per unit of inventory (dollars/(units)/year)
21i
annual percentage holding cost
22Q
quantity of an order (units)