0
Q size to order : obej. to find best of Q to minimize the cost
K:setup cost
c:cost of one unit
h: holding cost for one unit per one unit period of time
landa = demand rate
T cycle length = Q/landa
The cost is = order cost + cost of all unit ordered + average holding cost
C=K+cQ+(ThQ)/2
we divided all over time to be per unit time
so the average cost is :
G= (K+cQ)/T + (hQ/2)
replace T=Q/landa
G= ((K+cQ) / (Q/landa)) + (Qh/2)
then by manipulating
G= ((K* landa )/Q) + ( landa* c)+ (hQ/2)
this formula represent period setup cost , period purchases cost and period holding cost respectively.
because we want to find the minimize this formula gives we need to take the derivative -using calculus- to respect of Q:
G' = (- k *landa / Q^2) + h/2 - give min and max -
taking 2nd derivative
G'' = (2*k*landa)/Q^3
for Q>0 => G''>0 => G' is the min
having G' = 0
G' = (- k *landa / Q^2) + h/2 = 0
( k *landa / Q^2) = h/2
=> Q^2= (2*k*landa)/h
by taking square root of both sides
Q# (EOQ)= sqrt [(2*k*landa)/h]
Add your answer:
Earn +20 pts
What is production order quantity model?
Production Order Quantity (POQ) is a model that answers how much to produce and when to order. In this model, the materials produced are used immediately and hence lowering the holding cost that in Economic Order Quantity (EOQ).
What are the disadvantages of eoq?
The advantage of the EOQ formula is that it provides a baseline for getting the best deal. It helps you purchase what you're going to use and keeps you from overpurchasing to get 'deals' from vendors.The disadvantages are very obvious if you've got a high periodicity or seasonality to your consumption, or your usage is very minimal. EOQ should only be applied to higher volume items that are worth inventorying; it's much safer to use VMI (Vendor Managed Inventory) for items like bolts and screws that have a high volume and aren't worth inventorying. For instance, I would never use EOQ to order screws or bolts unless they were particularily expensive and individually inventoried. I wouldn't use EOQ to order memory chips for a retail computer store, because demand can vary greatly and the risk that they'll become obsolete is high. However, I would use EOQ to order steel L-brackets for an industrial production facility where production is consistent and/or forecast
What caused many firms to abandon the EOQ model for JIT?
Many firms abandoned the EOQ (Economic Order Quantity) model for Just-in-Time (JIT) due to the need for more flexibility and responsiveness in their production processes. JIT allows for production to be aligned more closely with customer demand, reduces inventory holding costs, and improves overall efficiency by eliminating waste and improving flow throughout the production process.
What are the uses of EOQ?
"what are the benefit of using EOQ?"
How does Economic order quantity differ from economic production quantity?
Economic Order Quantity (EOQ): in this method, our interest is on the raw material that we are going to use in the production. However, we need to do the EOQ method for each kind of raw material, if the product needs multiple material to be manufactured. Usually, this type of analysis is one shot method, because the period we are planing to order for is long (the assumption is that the period is non-ending). As for Economic Production Quantity (EPQ): The concentration is one the final product , which has been manufactured in the plant. This analysis is done once just like EOQ. A company could have more than one product that is when we do this method for each product. Here we assume that the production rate is greater than the demand rate. in this case we will need to manufacture the product for a certain period (production uptime). Then we stop the production (production shutdown) until the next uptime, which should be around the time where the inventory is near finishing. For the case where the demand is greater than the production you just produce the maximum amount you can.
What are the benefit of using EOQ?
"what are the benefit of using EOQ?"
How lead time is related to EOQ?
Lead time is the time it takes for an order to be delivered once it is placed, while Economic Order Quantity (EOQ) is the optimal order quantity that minimizes total inventory costs. Lead time influences the reorder point in EOQ calculations – a longer lead time may require a higher reorder point to avoid stockouts. It is important to consider lead time variability and safety stock when calculating EOQ to ensure continuous supply chain operations.
How EOQ can reduce stock costs?
Hello, I have a blog with information on reorder dates. I have a few posts that discuss EOQ. This is my post from Feb 28th, 2008(http://excelevolution.wordpress.com/2008/02/28/eoq-economic-order-quantity/) I hope this information will be somewhat useful to you. The EOQ (Economic Order Quantity) is the most cost effective amount to order each time stock needs to be replenished. EOQ is, for all intents and purposes, an accounting formula that determines the point at which the combination of order costs and inventory carrying costs are the least. In purchase-to-stock scenarios, this is known as the order quantity and in make-to-stock manufacturing situations, known as the production lot size. While the EOQ may not be relevant in every inventory situation, most companies will find it beneficial in at least some aspect of their operation. The optimal EOQ result in this table does not affect the EOQ section in the main part of the algorithm and may benefit from some adjustment. The rationale for this is that the optimal EOQ is just the mathematical figure. Please read the EOQ notes at the base of the algorithm to get an idea of how the optimal EOQ can be further refined by taking into account other factors. Once established, this 'corrected' figure can be put into the 'Number of pallets (units) per container (EOQ)' section. The EOQ notes are as follows: *The optimal EOQ will be further refined by taking into account the following factors: If the number of units is too large, these issues may arise: Additional storage space requirements, financial outlay may be too high, risk of spoilage, risk of obsolescence, lost opportunities with invested capital, higher insurance costs & more inventory available to be stolen & damaged. If the number of units is too small, these issues may arise: Inability to benefit greatly from current pricing, quantity discounts may not be offered, more risk of damage whilst in transit if not full multiples, shipping & receiving costs per unit may be higher. Cheers, Peter Phillips
Compare ABC analysis with eoq method?
ABC analysis classifies items based on their importance, while EOQ (Economic Order Quantity) method calculates the optimal order quantity to minimize total inventory costs. ABC analysis helps prioritize items for inventory management, whereas EOQ helps determine the quantity of each item to order to balance holding and ordering costs efficiently.
Criticism to Economic order quantity?
The assumptions included in the EOQ models are simplistic;The real cost of stock in operations are not as assumed in EOQ models;The models are really descriptive and should not be used as prescriptive devices.
What is the difference between production order quantity and economic order quantity?
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 - No quantity discounts - Stockouts can be completely avoided POQ Model - Only one item is involved - Annual demand is known - Usage rate is constant - Usage occurs continually - Production rate is constant - Lead time does not vary - No quantity discounts - Production can be done in batches or lots (capacity to produce a part exceeds the part's usage or demand rate) - Suited for production environment (material produced, used immediately. Provides production lot size) - Lower holding cost than EOQ model
What is the difference between EOQ and MRP?
apa perbedaan antara EOQ DAN MRP
