Economic Order Quantity

donnas1977

Hey, looking for some help with Economic Order Quantity (EOC), I understand the formula ok (√2 x CO x D/Ch). Example I am working on gives weekly usage and max delivery time and also given an average time for both, would you use the average times given rather than max?

thanks

Donna

SandyHood

donnas1977 wrote: »

Hey, looking for some help with Economic Order Quantity (EOC), I understand the formula ok (√2 x CO x D/Ch). Example I am working on gives weekly usage and max delivery time and also given an average time for both, would you use the average times given rather than max?

thanks

Donna

Lead times are not part of the EOQ calculation so ignore them, they are used for the control levels.

Vince22

You want the annual usage. The question should tell you how many weeks in a year the business operates, but if not, I would go with 52. The bottom figure is the annual cost of holding a unit of stock. But if both the top and bottom figures are weekly, then I guess you can use that (no point in multiplying top and bottom by 52).

As an example, if the cost of placing the order is £20, the annual usage is 10,000 units, and the cost of holding a unit for a year is £0.20, the equation is: sqrt (2 x 20 x 10,000)/0.2.

Hope that helps.