Economic Order Quantity EOQ Chapter 10

1
Economic Order Quantity (EOQ) (Chapter 10)

• Melissa Daly
• Kelli Johnson Watson
• Christina Wright

2
EOQ Defined

• The optimal order quantity that will minimize
  total inventory costs.
• Also referred to as the economic lot-size model

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Basic EOQ Model

• Demand is known with certainty and is constant
  over time
• No shortages are allowed
• Lead time for the receipt of orders is constant
• The order quantity is received all at once

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Inventory Order Cycle
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Computations

• Total annual ordering cost
• Annual ordering cost CoD / Q
• Total annual carrying cost
• Annual carrying cost CcQ / 2
• Total annual inventory cost
• TC CoD / Q CcQ / 2

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EOQ Cost Model
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Optimal value of Q

• CoD / Q CcQ / 2
• Q2 2CoD / Cc
• Qopt square root of 2CoD / Cc

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Total minimum cost

• TCmin CoD / Qopt CcQopt / 2

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For example
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Questions?

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