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dq-5 - Quantity discount Depending on the summation of...

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EOQ EOQ is defined as the amount per order expressed in units which minimizes the entire cost of processing orders and holding inventory. In case of EOQ demand has to be uniformed, certain and continuous over time. The lead time in EOQ is constant and certain. In case of EOQ there is no limit on order size due to capacity or other constraints. The cost of placing an order is independent of the size of the order. All prices are constant and certain; there is no discount available on bulk purchase. CHALLENGES Volume transportation rates : EOQ model does not take into account the cost of transportation of goods from vendor’s place to purchaser. Transportation costs are responsive to weight of shipment. Summation of inventory cost and inventory cost may be unfavorable to the interest of the organization if the quantity suggested by EOQ model does not encouraging transportation cost. The batch size needs to be evaluated from the total cost perspective.
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Unformatted text preview: Quantity discount : Depending on the summation of inventory costs and relief resulting out of quantity discounts, the amount of quantity to be economical need to be decided. The benefits of EOQ can be ripped off by quantity discounts if it is not evaluated on the basis of total costs perspective. Production lot size : sometimes buyers EOQ and suppliers EBQ don’t equivalent to each other. In order to make it practicable some changes need to be done. Multiple item purchase : when several items are purchased from a supplier, the impact of quantity discounts and transportation cost varies for the respective products. Thus certain measures need to be taken from the perspective of total cost for the combination of products. Limited capital : while buying budgetary allocations plays an important role. The budget needs to satisfy the needs of entire product line. Thus the EOQ of different items need to be adjusted....
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dq-5 - Quantity discount Depending on the summation of...

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