Part I is here.
The Economic Order Quantity (EOQ) model is a simple inventory-control technique. It is based on several assumptions:
- Demand is known and constant.
- Receipt of inventory is instantaneous and complete, i.e. the inventory from an order arrives in one batch at one time.
- No quantity discount.
- The only variable costs are inventory holding cost and ordering cost (or setup cost).
With these assumptions, the graph of inventory usage over time has a sawtooth shape, as shown in the diagram below:
The optimum order quantity is the quantity which results in lowest variable costs (inventory holding cost plus ordering cost). It is given by this formula:
Where:
Q* = optimal order quantity
D = annual demand in units for the inventory item
S = setup or ordering cost for each order
H = inventory holding cost per unit per year
Example
The annual demand for an inventory item is 1,000 units; the setup or ordering cost is $10 per order; and the holding cost per unit per year is $0.50. Solving for optimal order quantity:
Reference:
Jay Heizer & Barry Render, “Operations Management”, 8th edition
Wah... this post is so... erm... complicated!! I don't understand at all. Hehe.
ReplyDeleteday-dreamer,
ReplyDeleteCooking is more complicated :( Can you teach me arh?
Hahaha, actually it's not really that complicated. Trial and error and you get it. :)
ReplyDeletei've learnt this during form 6 but now forgot already.. wahaha..
ReplyDeleteday-dreamer,
ReplyDeleteIf you are willing to teach me, I can make fewer errors mah.
pink winnie,
You learnt this in Form 6??? I learn this in MBA. Your Form 6 class so advanced arh?
ya.. i've learnt EOQ in form 6! maybe not so detail..
ReplyDeleteThis post gives clear idea designed for the new viewers
ReplyDeleteof blogging, that genuinely how to do blogging.
Here is my blog post ... graduate certificate programs online
Hello, i think that i saw you visited my blog so i came to “return the favor”.I'm attempting to find things to enhance my web site!I suppose its ok to use some of your ideas!!
ReplyDeletemy page: homes for sale by owner
Woah! I'm really enjoying the template/theme of this site.
ReplyDeleteIt's simple, yet effective. A lot oof times it's tough
to get that "perfect balance" between user friendliness and
appearance. I must saay that you've done a exccellent job with this.
Also, thee blog loads super quick for me on Opera.
Excellent Blog!
my homepage - hack dragons of atlantis, dostavazvuka.com,