You sell a product for which monthly demand is Poisson with a mean of 400.\u00a0 The units cost you $1,500 each, and you sell them for $2,800.\u00a0 You can carry inventory from month to month, and estimate your inventory holding cost as $10 per unit left in inventory at the end of a month.<\/p>\n
Every time you order, there is a fixed cost of $600, plus the $1,500 per unit cost of the products ordered.<\/p>\n
You want to simulate a 24-month period, at the outset of which you have 700 units in stock.\u00a0 For every unit in stock at the end of this period, you assess a “salvage” credit of $1,500.<\/p>\n
You are considering ordering policies of the following form: if the ending inventory for a given month is less than or equal to some “threshold” value R<\/em>, immediately order another Q<\/em> units.\u00a0 For simplicity, assume that these units become available immediately at the beginning of the next month.<\/p>\n Your boss asks you to evaluate the following possible combinations of R<\/em> and Q<\/em>.\u00a0 Which one seems to yield the highest expected profit over the 24 month period?<\/p>\n 600<\/p>\n<\/td>\n 1200<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n For each policy, you also wish to estimate the probability of having a “stockout” at some time during the 24 month period.\u00a0 A “stockout” means that there is insufficient stock to meet customer demand.<\/p>\n","protected":false},"excerpt":{"rendered":"\n\n
\n Policy<\/strong><\/td>\n R<\/em><\/strong><\/td>\n Q<\/em><\/strong><\/td>\n<\/tr>\n \n 1<\/td>\n 400<\/td>\n 800<\/td>\n<\/tr>\n \n 2<\/td>\n 400<\/td>\n 1000<\/td>\n<\/tr>\n \n 3<\/td>\n 400<\/td>\n 1200<\/td>\n<\/tr>\n \n 4<\/td>\n 500<\/td>\n 1000<\/td>\n<\/tr>\n \n 5<\/td>\n 500<\/td>\n 1200<\/td>\n<\/tr>\n \n 6<\/td>\n 600<\/td>\n 1000<\/td>\n<\/tr>\n \n 7<\/p>\n<\/td>\n \n \n