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# Formula - EOQ The order size that minimizes the total...

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EOQ: The order size that minimizes the total inventory costs including: v purchasing cost A fixed ordering cost h inventory holding cost h=r*v Assumption of EOQ: ? There is a single (independent) product. ? The demand rate is known, constant, stationary, and continuous. ? The lead time is known and constant. ? The entire lot is received instantaneously and all at the same time ? No stockkouts are permitted. ? The cost structure is known and stationary. ? Planning horizon is infinite (very long). T cycle time Q=T*D Q order quantity D demand EOQ Cost: Qv purchasing cost Qv+A+QTh/2 A setup cost QTh/2 holding cost EOQ down=> decrease A or h

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Formula: Q=T*D Total cycle cost: Qv+A+QTh/2 Avg cycle cost: (Qv+A+QTh/2)/T cycle cost/cycle time TC(Q)= Dv+AD/Q+hQ/2 when Avg annual setup cost=Avg annual in Q*= sqrt(2AD/h) TC(Q*)= Dv+hQ* TC(Q*)= Dv+sqrt(2ADh) The number of months of dem = sqrt(288A/Dh) Implied tureover ratio: TR= D/I~= 2D/EOQ =sqrt(2Dh/A) operational cost, OC(Q)= AD/Q+hQ/2 Percentage cost penalty for using Q' instead of Q*: PCP= 50* P^2/(1+p) when Avg cycle cost= Avg annual cost : therefore, EOQ= T EOQ = 12EOQ/D
nv cost:

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