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.