Lisa first

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Equation / Last modified by LisaP on 2015/12/08 08:27
`Q_0 = `
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Economic Order Quantity (EOQ) is an equation used in inventory management where:

  • D = Demand
  • RC = Reorder cost
  • HC = Holding Cost
  • Q0 = Optimal order quantity

EconomicOrderQuantity-illustration.png

Notes

Economic order quantity: This is an excellent inventory model that helps business people know how much or quantities of products to order that will keep the inventory and ordering costs to a minimum. The model can also be used to conduct sensitivity analysis whereby there is uncertainty about the assumptions made in estimating the values of certain key variable.

For example the demand value could be changed repeatedly while observing the effect on the order quantity  and other variable in the model. In case of the following values

D= 280; RC=890; HC=230

The optimal order quantity will be 46.551 which could be rounded up to the next whole number i.e. 47