Economic order quantity variables

Variable costing is more valid in making decisions related to make or buy, economic order quantities, and other decisions. Supply chain design may transform variable into fixed costs. For example, a milk run will be made regardless of a decision to replenish any single SKU. Therefore, the reorder cost (including transportation) assumption related to the decision should be reduced accordingly. 

Many research problems that address pricing and production decisions with fixed production set-up cost fall within the area of the Economic Order Quantity (EOQ) model). The general EOQ model inventory model has been studied frequently in inventory literature (see [164] for a review). The problem consists of multiple periods in a fixed time horizon, with a stationary deterministic function in each period ordering or production costs have a fixed and variable component. Since demand is deterministic, the optimal policy will leave zero inventory at the end of each time cycle, so each period may be considered... 

An alternative way to deal with variable demand is to use the periodic order quantity. Here, the reorder quantities are revised more frequently. The method uses mean time between orders CTBO), which is calculated by dividing the EOQ by the average demand rate. In the above example, the EOQ is 1,000 and the average demand 410. The economic time interval is therefore approximately 2. An example shown in Table 6.2 illustrates the same situation as in Table 6.1 in terms of demand changes and safety stock level. However, the reorder quantity is based on total demand for the immediate two weeks of history. This reorder method is called periodic order quantity (POQ). 

The problem presented to the designer of a gas-absorption unit usually specifies the following quantities (1) gas flow rate (2) gas composition, at least with respect to the component or components to be sorbed (3) operating pressure and allowable pressure drop across the absorber (4) minimum degree of recoverv of one or more solutes and, possibly, (5) the solvent to be employed. Items 3, 4, and 5 may be subject to economic considerations and therefore are sometimes left up to the designer. For determining the number of variables that must be specified in order to fix a unique solution for the design of an absorber one can use the same phase-rule approach described in Sec. 13 for distillation systems. 

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