Inventory Policy 2

What is the best ordering policy for a warehouse to minimize cost, while meeting demands?
The warehouse has a limited storage capacity of 50000 cubic meters (m3) and a budget of $30,000.

	Holding Cost	Storage Space per unit (m3)	Demand per month	Ordering cost per order	Price per unit
Product 1	$25	440	200	$50	$200
Product 2	$20	850	325	$50	$300
Product 3	$30	1260	400	$50	$275
Product 4	$15	950	150	$50	$400

Storage Capacity	50000	Budget	$30,000

Quantity to order each month				Cost of holding	Space
		EOQ		and ordering	used (m3)
Product 1	25	28.28427		$713	5500
Product 2	25	40.31129		$900	10625
Product 3	25	36.51484		$1,175	15750
Product 4	25	31.62278		$488	11875
Cost of products	$29,375		Total	$3,275	43750


Problem
This model continues to build on the first inventory policy model. We expand the model by giving the warehouse a
budget for buying new products. In other words: A warehouse sells 4 products with a different demand for each
product. Each product has a different holding cost and requires a certain amount of space. What should the ordering
policy for the warehouse be, given its limited storage capacity and limited budget?

Solution
The variables are exactly the same as in the first model. So is the objective, and the way it is calculated. The
difference is that we have an extra constraint which keeps us within the budget. This new constraint is expressed as:
	Cost_of_products <= Available_money and we also have
	Space_used <= Available_space as before
We still have Quantities >= 0 via the Assume Non-Negative option. This time, we also require integer quantities:
	Quantities = integer

Remarks
Once again, we have calculated the EOQs as discussed in the first inventory policy model. If we would give a
unlimited budget and unlimited storage space, the Solver would find exactly those values.

There is one more change we made in this model compared to the one on worksheet Invent1. This time we
required the variables to be integers. Whether this is a valid assumption would depend completely on the type of
product that is dealt with. If a model is trying to determine how many cars, airplanes or other such articles to buy, it
could be very important to use integer variables. If the model, on the other hand, is giving an indication how much
sugar to buy, for example, it would not be appropriate to use integer variables.

Inventory Policy 2

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