A Handbook on Supply Chain Management by Kuldeepak Singh

Author:Kuldeepak Singh
Language: eng
Format: epub
ISBN: 9781638508885
Publisher: Notion Press
Published: 2021-01-15T00:00:00+00:00

Economic Order Quantity (EOQ)- EOQ tool is used to optimize the Inventory. It can be used to define different production intervals or Order Levels thus minimizing costs associated with buying, supplying and storing. It works on assumption that when the Inventory volumes rise the cost of Ordering goes down while at the same time the cost of Holding Inventory goes up. EOQ is the qty which gives the best output.

Step-A No of Orders = D (Annual Demand Qty)/Q (Quantity Per Order)

Step-B Annual Ordering Cost= D/Q * Ordering Cost (Fixed in Nature)

Step-C Holding Cost= Carrying Cost (Interest on Money Invested to Hold the Inventory) * Unit Cost

Step-D H (Average Holding Cost) = Q (Quantity/2) * C

Step-E TC (Annual Total Cost) = Annual Ordering Cost +Annual Holding Cost

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