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Economic Order Quantity

The document discusses the economic order quantity (EOQ) inventory model. The EOQ model seeks to balance ordering costs with holding costs to minimize total inventory costs. It assumes demand is constant and known, lead times do not vary, and orders are received in single deliveries. The model uses a formula to determine the optimal order quantity that minimizes total inventory costs by balancing when to order and how much to order.

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Khizer Sikander
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30 views2 pages

Economic Order Quantity

The document discusses the economic order quantity (EOQ) inventory model. The EOQ model seeks to balance ordering costs with holding costs to minimize total inventory costs. It assumes demand is constant and known, lead times do not vary, and orders are received in single deliveries. The model uses a formula to determine the optimal order quantity that minimizes total inventory costs by balancing when to order and how much to order.

Uploaded by

Khizer Sikander
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Economic Order Quantity: Economic order quantity is an inventory strategy that seeks to identify and maintain the ideal

balance between the holding costs associated with an inventory and the ordering costs that are incurred with that inventory. The ideal situation for the seller is to be able to create inventory that is used to fill pending customer orders without remaining in the inventory for extended periods of time. Assuming that the materials needed to manufacture the items for inventory arrive in a timely manner, are processed efficiently, and are placed in a finished goods inventory within a reasonable period of time, inventory cost can be reduced significantly. Keeping the standing inventory as close to zero as possible, this not only helps to minimize tax debt, but also allows the vendor to operate without the need to rent, lease, or otherwise operate warehouse space for a larger inventory. EOQ Model EOQ Model is the oldest and best-known inventory model, dated back to 1915. The purpose is to find that particular quantity to order which minimises total inventory costs. Ordering Costs are basically the costs of getting an item into the firms inventory. Holding Costs are basically the costs incurred due to storage space, interest, obsolescence, insurance, etc.

Assumptions of EOQ Model Only one product is involved Annual demand requirements known Demand is even throughout the year Lead time does not vary Each order is received in a single delivery There are no quantity discounts Formulae:

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