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EOQRLSO is an optimization model that computes the total supply cost
from a single source to a single destination.
The original data in the sheet model the supply of Hewlett-Packard printers
from Vancouver, WA to a distribution center(DC) in Western Europe.
The model has two optimizable variables:
1) The order quantity, or equivalently the frequency of orders or shipments, and
2) The safety stock carried at the DC, or equivalently the Z value for the number of standard deviations above the mean lead time demand of the pipeline inventory which triggers an order.
The costs affected by the above two decisions are:
a) cost of cycle inventory, lower if we order more frequently,
b) fixed costs of orders, lower if we order less frequently,
c) cost of safety stock, lower if we trigger an order later, when pipeline inventory is lower,
d) cost of demand not immedately satisfied from stock, lower if we trigger an order sooner, or if we order less frequently so we expose ourselves to about-to-stockout situations less frequently.
This model requires the What'sBest optimizer from LINDO Systems, http://www.lindo.com The model is solved by clicking on the red "bullseye" on the What'sBest tool bar.