ANT371H1 Study Guide - Unita, Purch Group, Mnist Database
Document Summary
In this section we shall construct a simple quantitative model to describe the cost of maintaining an inventory. Suppose you must meet an annual demand of v units of a certain product for which the rate of demand is constant throughout the year. Suppose further that you replenish your stock periodically throughout the year by ordering x units of the product just when your stock is about depleted. In this case a graph of your inventory level versus time would look something like figure 1. x x/2 t. The decreasing lines are parallel since the rate of demand is constant throughout the year. We shall incorporate three costs into our model: storage costs, re-ordering costs, and purchasing costs. Suppose the cost in dollars per annum of storing one unit is a . The average inventory level (see figure 1) is x. , so we shall take the annual storage cost to be.
