Manufacturing Suitability Process Discrete Make to Stock Consumer Packaged Goods Batch Food Products Pharmaceuticals Oil & Gas Process Repetitive Electronic Components Configurable Products Make to Order Assemble to Order Personal Computers Automotive Components Aerospace Project Engineer to Order Custom Products & Equipment
Economic Order Quantity - EOQ costs carrying too much inventory costs carrying too little inventory
EOQ attempts to balance these costs:
overhead costs, holding costs,
risk of lost market values, shrinkage
A = The annual usage in units S = The overhead cost of placing one order C = The unit cost i = The carrying cost rate What is the formula for EOQ? What do the terms mean? Calculating EOQ EOQ iC AS 2
C O S T ORDER QUANTITY E.O.Q . ORDER PLACEMENT/ SETUP COST STOCK HOLDING COST Economic Batch Quantity
When do we place the inventory order? What is the formula?
Define Lead Time:
time lag between initiating a purchase order and when inventory is delivered and ready for sale.
Minimum Quantity Calculation Minimum Quantity = Average lead time in days x Average daily sales + Safety Stock
TIME S T O C K L E V E L SAFETY STOCK LEVEL (SS) MQ LT USAGE ( U) = 10 UNITS / DAY LEAD TIME ( LT) = 5 DAYS SAFETY STOCK (SS) = 20 UNITS Minimum Quantity (MQ) = SS + ( LT x U ) = 20 + ( 5 X 10 ) = 70 UNITS MQ = user defined 20 40 70 Minimum Quantity - Example