Economic Order Quantity and Economic Production Quantity

Models for Inventory Management

This site is a part of the JavaScript E-labslearning objects for decision making. Other JavaScript in this series are categorized under different areas of applications in theMENUsection on this page.

Inventory control is concerned with minimizing the total cost of inventory. In the U.K. the term often used is stock control. The three main factors in inventory control decision making process are:

The third element is the most difficult to measure and is often handled by establishing a "service level" policy, e. g, certain percentage of demand will be met from stock without delay.

- The cost of holding the stock (e.g., based on the interest rate).
- The cost of placing an order (e.g., for row material stocks) or the set-up cost of production.
- The cost of shortage, i.e., what is lost if the stock is insufficient to meet all demand.

The ABC ClassificationThe ABC classification system is to grouping items according to annual sales volume, in an attempt to identify the small number of items that will account for most of the sales volume and that are the most important ones to control for effective inventory management.

Reorder Point:The inventory level R in which an order is placed where R = D.L, D = demand rate (demand rate period (day, week, etc), and L = lead time.

Safety Stock:Remaining inventory between the times that an order is placed and when new stock is received. If there are not enough inventories then a shortage may occur.Safety stock is a hedge against running out of inventory. It is an extra inventory to take care on unexpected events. It is often called buffer stock. The absence of inventory is called a shortage.

Quantity Discount Model Calculation Steps:

- Compute EOQ for each quantity discount price.
- Is computed EOQ in the discount range?
- If not, use lowest cost quantity in the discount range.
- Compute Total Cost for EOQ or lowest cost quantity in discount range.
- Select quantity with the lowest Total Cost, including the cost of the items purchased.

The following This JavaScript compute the optimal values for the decision variables based on currently available information about the above factors.

Enter the needed information, and then click the

Calculatebutton.In entering your data to move from cell to cell in the data-matrix use the

Tab keynot arrow or enter keys.

## MENU:

- The Classical Model
- Shortages Permitted Model
- Production and Consumption Model
- Production and Consumption with Shortages Model
- EOQ with Shortages and Lead Time
- The ABC Classification
- Inventory Control with Uncertain Demand

EOQ with Shortages and Lead Time

I: Base Economic Order Quantity Total Demand Ordering Cost Holding Cost/unit/year Unit Price EOQ

Average Periodic Ordering Intervals

Total Number of Orders

Total Cost

II: EOQ with Shortages and Lead Time Estimated Lead Time in Days Shortage Cost/unit/year

EOQ

Level for Reorder Point

Maximum Inventory Level

Total Cost

Longest Delay Time in Days

For Technical Details, Back to:

Decision Making in Economics and Finance

Kindly email your comments to:

Professor Hossein Arsham

The Copyright Statement: The fair use, according to the 1996 Fair Use Guidelines for Educational Multimedia, of materials presented on this Web site is permitted for non-commercial and classroom purposes only.

This site may be translated and/or mirrored intact (including these notices), on any server with public access. All files are available at http://home.ubalt.edu/ntsbarsh/Business-stat for mirroring.Kindly e-mail me your comments, suggestions, and concerns. Thank you.

Back to:

EOF: © 1994-2015.