An Economic Order Quantity is the optimal number of order that minimizes total variable costs required to order and hold inventory, that is to say, that EOQ helps us to determine the appropriate amount and frequency when ordering and holding inventory. EOQ is used as part of a continuous review inventory system, in which the level of inventory is monitored at all times, and a fixed quantity is ordered each time the inventory level reaches a specific reorder point, as it shown in the left-hand graphic, where R is the minimum inventory. Moreover, EOQ is essentially an accounting formula that determines the point at which the combination of order costs and inventory carrying costs are the least. The result is the most cost effective quantity to order. Also, EOQ is generally recommended in operations where demand is relatively steady, items with demand variability such as seasonality can still use the model by going to shorter time periods for the EOQ calculation. This Model have som assumptions that are important to take into account: 1. Demand is known and is deterministic, ie. constant.

2. The lead time, ie. the time between the placement of the order and the receipt of the order is known and constant. 3. The receipt of inventory is instantaneous. In other words the inventory from an order arrives in one batch at one point in time. 4. Quantity discounts are not possible, in other words it does not make any difference how much we order, the price of the product will still be the same. (for the Basic EOQ-Model) 5. That the only costs pertinent to the inventory model are the cost of placing an order and the cost of holding or storing inventory over time The basic Economic Order Quantity (EOQ) formula is:

WhereA = Demand for the year
Cp = Cost to place a single order
Ch = Cost to hold one unit inventory for a year
Then, the before formula try to Minimize the Total cost...

...The EconomicOrderQuantity (EOQ) is the number of units that a company should add to inventory with each order to minimize the total costs of inventory—such as holding costs, order costs, and shortage costs. The EOQ is used as part of a continuous review inventory system, in which the level of inventory is monitored at all times, and a fixed quantity is ordered each time the inventory level reaches a specific reorder point. The EOQ provides a model for calculating the appropriate reorder point and the optimal reorder quantity to ensure the instantaneous replenishment of inventory with no shortages. It can be a valuable tool for small business owners who need to make decisions about how much inventory to keep on hand, how many items to order each time, and how often to reorder to incur the lowest possible costs.
The EOQ model assumes that demand is constant, and that inventory is depleted at a fixed rate until it reaches zero. At that point, a specific number of items arrive to return the inventory to its beginning level. Since the model assumes instantaneous replenishment, there are no inventory shortages or associated costs. Therefore, the cost of inventory under the EOQ model involves a tradeoff between inventory holding costs (the cost of storage, as well as the cost of tying up capital...

...ECONOMICORDERQUANTITY AND IT’S IMPLMENTATION IN BUSINESS
Any business man, executive, and entrepreneur should know the basic tools for a company to develop in the market, regardless how big the business is, there are many factors involve. It is very important in every business to handle well developed financial and logistics processes. In order for a company to handle a correct logistic, without matter if it is a goods or services company, it is necessary to identify many factors. Some of the factors to be taken into account are many strategic and financial matters, such as the supply chain management, warehouses, distribution centers, inventory management, packaging and material handling, transportation, among others.
A commonly faced problem in companies is that managers of manufacturing or distribution organizations, doesn’t know which will be the adequate quantity of inventory to have in stock. Many people would think that the more stock a company has is the best. It is true that having a large amount of inventory will help customers to make faster and immediate purchases, shipments will be done quicker, and will prevent the company of being out of stock of certain product and causing some opportunity cost with the customers; it is important to notice that the stocking of products is very expensive. Some companies, such as Wal-Mart or Dell Computers, handle an efficient managing of...

...EconomicOrderQuantity vs. Just-in-time Inventory Models
Bettina Bradshaw
Susan Day
Tameka S. Levy
Accounting
April 20, 2011
There are several models that have been developed to deal with the trade-off between ordering and carrying costs of inventory. The two that will be discussed is the EconomicOrderQuantity (EOQ) model and the Just-in-time (JIT) model. First, the history and definition of the theories will be discussed. Secondly, there will be a comparison of these two models presented. Thirdly, organizations that employ the EOQ and JIT model will be discussed and an explanation will be given on how each organization benefited in their operations from using these particular models.
The EOQ model is a mathematical model that minimizes the total of short-term ordering costs plus short-term carrying cost for the period. In addition, it specifies the size of order to place every time inventory is ordered (Ainsworth & Deines, 2011). The EOQ model was developed by F. W. Harris in 1913, but R. H. Wilson, a consultant who applied it broadly, is given credit for his early thorough analysis of it (Hax, 1984).
The JIT inventory model is a long-run model based on the principle that inventory should arrive just as needed for production in the quantities needed (Ainsworth & Deines, 2011). JIT...

...EconomicOrderQuantityEOQ, or EconomicOrderQuantity, is defined as the optimal quantity of orders that minimizes total variable costs required to order and hold inventory.
Every company worries about two things when deciding how to manage their inventory. How much should we order? And how often should we order? These represent variables that come with their own changing costs. The EconomicOrderQuantity, or EOQ, is that magic number that represents the optimal quantity of orders that minimizes total variable costs required to order and hold inventory. The EOQ helps us to determine the appropriate amount and frequency when ordering and holding inventory.
How EOQ Works
The Principles Behind EOQ: The Total Cost Curve
In box (a) we see the inventory carrying costs, or the costs associated with holding inventory. These costs increase as you hold more and more inventory.
In box (b) we see the order processing costs, also known as the procurement costs. The costs decrease as the orderquantity increases.
In box (c) these two graphs are combined to reflect the total variable costs associated with the...

...manufacturers of specialized construction equipment, including bulldozers, graders, and cement mixers. FabQual also manufactures and distributes spare parts. The company has made a specialty of providing spare parts for equipment no longer in production; this includes wear parts that are no longer in production for any OEM. The Materials Management Group (MMG) orders parts – both for delivery to a customer’s production line and for spares – from the Fabrication Department. Spares are stocked in a Finished Goods Store. FabQual’s part number 650810/ss/R9/o is a wear part made only for spares demand. It has had demand averaging 300 units per week for more than a year, and this level of demand is expected to persist for at least 4 more years. The standard deviation of weekly demand is 50 units. (You can ignore this standard deviation information. You will not need to work with it for the questions I have asked.) The MMG has been ordering 1300 units monthly of part number 650810/ss/R9/o from the Fabrication Department to meet the forecast annual demand of 15,600 units. The order is placed in the first week of each month. In order to provide Fabrication with scheduling flexibility, as well as to help with planning raw material requirements, a 3-week manufacturing lead time is allowed for parts. In the Fabrication Department, 2 hours is now allowed for each setup for a run of part number 650810/ss/R9/o. This time includes strip-down of...

...edge over other companies. The word inventory refers to any kind of resource having economic value and is maintained to fulfill the present and future needs of an organization. Fred hansman defined inventory as an idle resource of any kind provided such a resource has economic value. Inventory of resources is held to provide desirable service to customers and to achieve sales turnover target. Investment in large inventories adversely affects firm’s cash flow and working capital as investment in inventory represents substantial portion of total capital investment in any business. It is in therefore essential to balance the advantage of having inventory of resources and the cost of maintain it so as to determine an optimal level of inventory of each resource so that total inventory cost is minimum. Holding of stock is expensive so controls are needed to ensure that stock level remains as low as possible. Stocks should be controlled using rational policies to balance between holding cost and demand. One such policy is ordering ECONOMICORDER QUQNTITY for stock replenishment at this point holding cost reduces significantly and total annual inventory cost is lowest. Though maintaining exact EOQ is sometime not possible working in the vicinity of it results in lower total annual inventory cost. Holding cost is straight line that is it directly varies with ordering quantity (according to classic...

...shortage of LCDs, since this would disrupt production, so DI guarantees a delivery time of 1/2 week on each order. The placement of each order is estimated to require 1 hour of clerical time, with a direct cost of $15 per hour plus overhead costs of another $5 per hour. A rough estimate has been made that the annual cost of capital tied up in Computronics’ inventory is 15 percent of the value (measured by purchase cost) of the inventory. Other costs associated with storing and protecting the LCDs in inventory amount to 5 cents per LCD per year.
(a) What should the orderquantity and reorder point be for the LCDs? What is the corresponding total variable inventory cost per year (holding costs plus administrative costs for placing orders)?
We calculate the data needed for the basic EOQ model as follows:
Demand per year for LCD = 52(200/week) = 10,400/year.
Setup cost = direct cost + overhead cost = ($15/hr)(1 hr) + ($5/hr)(1 hr)
= $15 + $5 = $20.
Unit holding cost = 15% of the value of each LCD + 5 cents of storing and
protecting cost per LCD
= 15%($1) + $0.05 = $0.20 per LCD.
Delivery time = 1/2week = 3.5 days.
Working days per year = 365 days/year.
We use the Excel template for the basic EOQ Model (shown next) and obtain the following solutions:
Optimal...

...EconomicOrderQuantityEconomicorderquantity is a simple inventory management model that many companies and software programs utilize to determine the point at which the combination of inventory order costs and inventory carrying costs are the least - thus most profitable to the company. The result is the most cost effective quantity to order. When you have repetitive purchasing/ sales of an item, EOQ can prove beneficial. Though EOQ is generally recommended where usage is constant, items with demand variability such as seasonality can still use the model by going to shorter time periods.
The Equation:
[pic]
S = Annual Usage (sales) in units
O = Order cost per order
C = The carrying cost per unit per period
Q = The orderquantity
Annual Usage.
Expressed in units, this is generally is based on prior year unit sales, forecasted unit sales, a combination of both, or even last 6 months unit sales extrapolated based on current market conditions - thing is you can pick and choose what is best in your situation.
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Order Cost.
This is the sum of the costs that are incurred each time an item is ordered. These costs are associated with physical activities required to process the order as well as...