FS Alpha Fixed Parameter Optimization Guide

Question

Guide by Example

Approach

Assumption

Step 1: Calculating Lead Time Demand

Step 2: Creating the Demand Probability Distribution

Demand Probability
1 0.000
2 0.001
3 0.010
4 0.029
5 0.053
6 0.074
7 0.090
8 0.098
9 0.099
10 0.094
11 0.085
12 0.074
13 0.062
14 0.051
15 0.041
16 0.032
17 0.025

Step 3: Calculating the Number of Fills

Demand Probability
1 0.000
2 0.001
3 0.010
4 0.029
5 0.053
6 0.074
7 0.090
8 0.098
9 0.099
10 0.094
11 0.085

Step 4: Calculating Profit

5.25 * 20,000 = $105,000 
6.06 * 20,000 = $121,200
6.06-5.25 * 20,000 = 0.81 * 20,000 = $16,200 

Step 5: Calculating Average Inventory Levels

initialStockingLevel / (leadTimeDemand+1);
(initialStockingLevel - leadTimeDemand) + 0.5; 

Step 6: Calculating Inventory Cost

0.92 * 700/365 * 0.12 * 20,000
1.92 * 700/365 * 0.12 * 20,000

Step 7: Comparing Marginal Profit to Marginal Inventory Cost

$16,200 - $4,602.74 = $11,597.26

Optimization Result CSV File

Summary

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