EOQ Flashcards
1
Q
Economic Order Quantity (EOQ)
A
Inventory management model that gives the optimal order quantity a company should order to minimize inventory costs such
as holding costs, and ordering (setup) costs.
2
Q
EOQ Assumptions
A
- Demand is known, and constant.
- Lead time, the time between the order placement and its
arrival, is known and constant. - Receipt of inventory is instantaneous and complete.
- Quantity discounts are not possible.
- Only variable costs are setup (or ordering) and holding.
- Stockouts can be completely avoided.
3
Q
Total inventory cost
A
Total inventory cost = Annual setup (order) costs + Annual holding cost
4
Q
Annual holding cost
A
Cost function 1 = Q/2*(H)
5
Q
Annual set up cost
A
Cost function 2: (D/Q)*S
6
Q
ROP
A
ROP = d * L
7
Q
d
A
D/# of working periods in a year
8
Q
A
