J E Beasley

OR-Notes are a series of introductory notes on topics that fall under the broad heading of the field of operations research (OR). They were originally used by me in an introductory OR course I give at Imperial College. They are now available for use by any students and teachers interested in OR subject to the following conditions.

A full list of the topics available in OR-Notes can be found here.

Inventory control tutorial question

On average I sell 150,000 units a year which I obtain from a wholesaler. I estimate that the cost to me of placing an order is £50 with the average inventory storage cost being 20% per year of the cost of a unit (£5). Currently interest rates are 15%.

What would be the optimal order quantity?

I currently order 5 times a year. How much would I save by switching to the optimal order quantity as compared with my current policy of ordering 5 times a year?

To produce a tape recorder doll the Educational Toy Company purchases all the doll material from the same vendor. The annual demand is 10,000 units, ordering cost is £10 and the storage cost per year is 15% of the purchase cost and interest rates are 5%.

For a particular component I use 105,000 a year with an order cost of £100 per order. My supplier has a basic price of £0.15 per unit but offers a 10% discount if I order 20,000 components or more. If the cost of storing stock is 20% of the cost of a component per year and interest rates are 10% per year then: