2. Meaning of ECQ
The Economic Order Quantity (ECQ) is the
number of units that a company should add to
inventory with each order to minimize the
total costs of inventory-such as holding costs,
order costs, and shortage costs.
The ECQ model finds the quantity that
minimizes the sum of these costs.
3. FORMULA
1. ECQ = √2AB ∕ CS
A = Annual consumption or usage of
materials in units
B = Buying cost per order / ordering cost
C = Cost per units
S = Storage and carrying cost percentage
per annum
4. PROBLEM
Find out the economic order quantity and the
number of orders per year from the following
information:
Monthly consumption 3,000 units
Cost per units Rs.54
Ordering cost Rs.150 per order
Inventory carrying cost 20% of the
average inventory.
5. SOLUTION
• ECQ = √2AB/CS
Number of order per year
A = Annual consumption
B = Buying cost per order
C = Cost per units
S = Storage and carrying cost percentage per
annum
6. Annual Usage / Consumption = 3000×12
= 3600
Number of order per year = 3600/1000
= 36
ECQ = √2(3600×150)/54×20/100
= √10800000/10.8
= √1000000
= 1000
7. Frequency of Order = Days or month in the year/
No . of order per annum
= 365/36
= 10 Days
(or)
= 12/36
= 1/3 month
An order is to be place once in 10 days are 1/3 of the
month for 1000 units each time.
