Economic Order Quantity-basics
 Ing.J.Skorkovský, CSc,
Department of Business Management
FACULTY OF ECONOMICS AND ADMINISTRATION
Masaryk University Brno
Czech Republic

Karta zboží – záložka doplnění



Reorder Point
Reorder Point
Base the reorder point on the item’s demand profile.
If historical data shows that the item’s average demand is 100 units during a lead time of seven
days, then the reorder point can be set to 100 as a minimum.
This means that when the inventory level falls below 100 units, then the planning system will
suggest to replenish because it takes seven days to supply the item, and there must be enough to
cover the demand within those seven days.
Reorder Quantity
Reorder Point

EOQ 1
•EOQ = Economic Order Quantity and limitation of this model (omezení)
•EQO = Deterministic model – jde o deterministický model
•Variables  used to derive  EOQ basic formula (see slide EOQ5)
–Ch = Cost to hold one unit inventory for a year–náklad na skladování skladové položky/rok
–Cp = Cost to place a single order – náklad spojený s vyřízením jedné objednávky
–  A = Demand for the year –  požadavky za celý rok
–  Q = Quantity of orders – počet všech  objednávek
–
•The Economic Order Quantity (EOQ) is the order quantity that minimizes total holding and ordering
costs for the year. Evenif all the assumptions don’t hold exactly, the EOQ gives us a good
indication of whether or not current order quantities are reasonable – má to vazbu na využívání
sešitu požadavků v NAV (MRP)
•  Total Relevant Cost (TRC)
–    why relevant ? -> because they are affected by order quantity
•  TRC= Yearly Holding Cost + Yearly Ordering Cost
•
Average inventory carrying cost –>see EOQ4  slide

EOQ 2
•What is the EOQ Model?
•Cost Minimizing Order Quantity (Q)
•Assumptions = Prerequisites (předpoklady):
–Single item only - hodnotí se vždy jedna skladová položka
–Relatively uniform (continuous) & known demand rate – relativně stálá poptávka
–Fixed item cost  - fixní náklad spojený s pořízením zboží
–Fixed ordering and holding cost -fixní náklady na objednávání a skladování
–No stock shortage and Instantaneous shipment  - nepočítá se s podtečením zásob pod nastavenou
hodnotu a v případě požadavku se realizuje okamžitě dodávka
–
•Constant Lead Time =LT (see slide EOQ3)  - průběžná doba
•

•
•
EOQ 3
A
Q = Quantity
LT
A
LT-Lead time = průběžná doba
time
Notice, that inventory never goes below zero; shortages do not exist !!
A – směrnice poptávky

 EOQ4 -  Carrying cost (náklady na skladování)
7
•Resource- Taylor- Wikipedia
To verify this relationship, we can specify any number of points values of Q over the entire time
period, t , and divide by the number of points. For example, if Q = 5,000, the six points
designated from 5,000 to 0, as shown in shown figure, are summed and divided by 6:

EOQ 5
•EOQ
To calculate derivative of TRC and put it to 0
dTRC/dQ=0=Ch/2+(A*Cp)/(Q*Q)-> Q=
TRC=
Derivujeme tuto rovnici pode Q  a najdeme extrém
TRC=Total Relevant Cost

EOQ 6 – simpe example
•EOQ
* Pamela Sweet  runs a mail-order business for gym equipment. Annual demand for the Trico Flexers
is 16,000 =A. The annual holding cost per unit is $2.50=Ch and the cost to place an order is
$50=Cp. What is the economic order quantity?
*
Ch = Cost to hold one unit inventory for a year
Cp = Cost to place a single order
  A = Demand for the year
  Q = Quantity of orders
= Q

•EOQ