Economic Ordering Quantity (EOQ) Model Demand [D] (week or year) Ordering Cost [S] Carrying Cost/item [H]* Price of the Item [p] EOQ = Order Cycle = Average Inventory = 800 30 50 250 31 25.8 times (in a week or year) 15 Holding Cost = Carrying Cost = Total Cost = $774.60 $774.60 $1,549.19 Investment Cost = $7,745.97 (If price of item is known) * must be calculated as same period length of Demand. EX11.1 a. Economic Order Quantity b. Length of an Order Cycle c. Total Average Weekly Costs d. Investment Costs e. EOQ if ordering costs increased 50% f. Reorder Point with no safety stock g. Reorder Point if 1000 units safety stock Multi-Item Inventory - EOQ and ABC Classification Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Item Price/ Demand 104 260 728 1248 13000 790 78000 114400 66040 6240 11440 18200 910 315 65000 Unit Cost 2225.00 5000.00 3550.00 3.50 1.75 1290.00 2.25 0.65 0.95 12.50 2.00 1.50 1300.00 2700.00 3.75 Rate 12% 10% 8% 12% 18% 2% 14% 17% 21% 12% 15% 14% 2% 2% 22% Ordering Cost 6 5 12 28 18 35 10 6 5 12 28 18 25 50 19 Item Carrying Cost 267.00 500.00 284.00 0.42 0.32 25.80 0.32 0.11 0.20 1.50 0.30 0.21 26.00 54.00 0.83 EOQ 2.2 2.3 7.8 407.9 1218.9 46.3 2225.4 3524.7 1819.4 316.0 1461.3 1766.4 41.8 24.2 1730.3 Carrying Cost 288.62 570.09 1113.78 85.66 191.98 597.23 350.50 194.74 181.49 236.98 219.20 185.47 543.83 652.11 713.75 Total Cost of Length of Ordering Inventory Order Cycle Cost Management in Days 288.62 577.25 8 570.09 1140.18 3 1113.78 2227.57 4 85.66 171.33 119 191.98 383.95 34 597.23 1194.46 21 350.50 701.00 10 194.74 389.48 11 181.49 362.97 10 236.98 473.96 18 219.20 438.40 47 185.47 370.93 35 543.83 1087.66 17 652.11 1304.22 28 713.75 1427.50 10 Overall Total Annual Annual Carrying $12,250.86 Investment Cost 4810.41 11401.75 27844.57 1427.73 2133.07 59723.11 5007.14 2291.06 1728.45 3949.68 2922.65 2649.53 54382.90 65211.20 6488.63 $ 251,971.86 Total Percentage Annual of Total Costs Annual (Volume) Cost 231400.00 2.94% 1300000.00 16.50% 2584400.00 32.80% 4368.00 0.06% 22750.00 0.29% 1019100.00 12.93% 175500.00 2.23% 74360.00 0.94% 62738.00 0.80% 78000.00 0.99% 22880.00 0.29% 27300.00 0.35% 1183000.00 15.01% 850500.00 10.79% 243750.00 3.09% $ 7,880,046.00 * Assumes >15% of dollar volume is A , < 1% is C item Investment cost represents the money spent to acquire the items or what has been paid for the inventory in stock. These costs are recovered once items are used, and reinvested in another cycle of ordering. The inventory management costs are the costs involved in managing, maintaining and reordering the stock of items. It includes the holding (carrying) costs (interest, insurance obsolescence,deterioration, spoilage, pilfering and breakage) and order (administrative) costs. ABC Class* B A A C C B B C C C C C A B B EX11.6