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Reorder Point

Reorder Point - Reorder Point Safety Stock Reorder Point w...

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Reorder Point 1 Safety Stock protects the firm from running out of inventory if sales are not stable or the production or delivery times are uncertain or Reorder Point w/ Safety Stock and Delivery Time

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Incorporating Quantity Discounts 2 Now we will weave in quantity discounts. It must be determined if the discount for volume orders offsets the TC = Order Cost + Holding Cost + Item Cost TC = [ F х ( T/Q ) ] + [ H х ( Q /2) ] + (C’ х T) New T = Total inventory units demanded Q = Order quantity F = Fixed Order Cost per order
Incorporating Quantity Discounts 3 Before, there was no discount offered, and the EOQ was 4,000 at \$0.50/unit; with the discount, it is now 5,000. Period Inventory Requirement 500000 Ordering Costs \$20.00 Per Order Holding Costs \$1.25 Per Ton 0 - 999 \$0.50 500 \$270,313 \$20,000 \$313 \$250,000 1,000 - 2,999 units \$0.48 1000 \$250,625 \$10,000 \$625 \$240,000 3,000 - 4,999 units \$0.45 1500 \$247,604 \$6,667 \$938 \$240,000 5,000+ units \$0.40 2000 \$246,250 \$5,000 \$1,250 \$240,000 2500 \$245,563 \$4,000 \$1,563 \$240,000 3000 \$230,208 \$3,333 \$1,875 \$225,000 3500 \$230,045 \$2,857 \$2,188 \$225,000 4000 \$230,000 \$2,500 \$2,500 \$225,000 4500 \$230,035 \$2,222 \$2,813 \$225,000 5000 \$205,125 \$2,000 \$3,125 \$200,000 5500 \$205,256 \$1,818 \$3,438 \$200,000 6000 \$205,417 \$1,667 \$3,750 \$200,000 Quantity ( Q ) Cost/ Unit ( C ') Quantity ( Q ) Total Costs Ordering Costs Holding Costs (based

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