EOQ and stock levels

System · January 2005

can some one please advise me on the following:- 7500 boxes used per annum 2 weeks lead time for deliveries Making order costs Ã‚Â£20 Cost of keeping 1 item in stock is Ã‚Â£1 1) What is Economic order quantity? 2) What is minimum buffer stock 3) What should the reorder level be? 4) What should maximum level be of stock I have calculated the answers as:- 1) 548, 2) 300 3) 450 4) ??? But i am unsure if i have done this right and cant work out what 4) would be. Any assistance would be gratefully received Thanks

System · January 2005

EOQ and stock levels

I reckon it is 698 but would appreciate someone else checking. I agree with all the answers that you have given. Annette

System · January 2005

EOQ and stock levels

√(2CD/H) is the formula generally used for economic order quantity calculations. Sadly, I think that modern systems such as MRP and JIT make this approach to deciding how much to order rather outdated. In your calculation the sums are 2 x C (the cost per oder) x D (the annual demand) then divide the total by H (the cost of holding one item in stock) then square root the answer I made it 547.7226 which agrees with your 548 units Continuing with the question Buffer stock - the stock needed for the period between the order being placed and the delivry received IF (big if) stock is used evenly throughout the year we can say that typical weekly usage is 7500 (annual demand)/50 (are you happy with 50 weeks in the year? - I have used it to keep the numbers reasonably easy) =150 per week So we need the average usage x the average lead time (150units x 2 weeks) = 300 units(just as you suggested) Reorder level The reorder level needs to be (maximum usage x maximum lead time) + minimum stock level (150 x 2) + 300 =600 Maximum stock Minimum stock + reorder quantity 300 + 548 = 848 I hope this helps. I am no longer as keen to teach these techniques as I was a few years ago. Modern computer programmes can make the costs of stockholding much lower by enabling the departments to have what they need when they need it without having to hold specific stock levels. If you have been studying this for ECR I don't think this level of knowledge is required. I have certainly found that the portfolio can satisfy the requirements so long as a particular item of stock has been discussed in terms of whether it has breached stock control levels that have already been set. I have spoken about stock control with the examiner on two occassions and I do not expect him to test it in the exam either in June or December this year. It could be assessed in the skills test in the way I outlined. I do not expect economic order quantity to be assesssed ever in any form as part of the current ECR syllabus. ShazAAT I hope this helps, and don't get too hung up on what in many respects is out of date and is a small section of the syllabus. sandy.hood@chichester.ac.uk

System · January 2005

EOQ and stock levels

Sandy I bow to your experience, you must be right but are there different formulae, I had different formulae for the reorder level and the maximum stock quantity? Yours do make much more sense though. Annette

System · January 2005

EOQ and stock levels

Blue I agree with you. The answers change when the formulae changes. AAT performance criteria and range statements are not specific about which formula to use. Different writers use different formulae - and most rely on the usage having max min and average levels and the lead times having max min and average periods. But I think this is all part of a technique which has not been a practical issue for some time. If I could have any influence over the syllabus I would move to more useful stock control issues rather than these sums based on learning formulae. I have asked the current examiner about stock control on two occassions and was interested in how the answers differed. I would not expect to see it in an exam in 2005. Sandy

System · January 2005

EOQ and stock levels

Thank you both, not sure what answer i should go with now, i also had a different formula to yours Sandy for the re-order level and maximum stock in my books, (Osbourne Books) both make sense, but i think i will just write the answer showing my formula and see how my tutor likes it. Thanks again.

System · January 2005

EOQ and stock levels

Thanks Sandy for clarifying about the 2 formulae, it was something we mentioned in intermediate and that was 3 years ago!! Annette

EOQ and stock levels

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