Economic Order Quantity Formula

12manage is looking for
MBA students.


 
Vendor Managed Inventory > Forum Log in

Economic Order Quantity Formula
ANUJ KUMAR SHRIVASTAVA, Manager, India, Premium Member
EOQ is the order quantity that minimizes total inventory holding costs and ordering costs. It is used in production scheduling. The formula used to determine this order quantity is also known as Barabas EOQ Model or the Barabas Formula.

Can anyone please help me to understand the EOQ calculation technique practically?

The Barabas formula of Economic Order Quantity is: EOQ = √(2DS / C)
In which the variables are:
D = annual Demand quantity
S = Set up cost (fixed cost per order, not per unit)
C = Carrying cost, storage cost, annual holding cost per unit

But this seems to be difficult to be implied as the demand D does not always remains the same, neither is the cost of carrying goods C.
And the set up cost S is always an amount which we assume on experience, but we don't calculate it exactly....Sign up
 

 
Barabas, Wilson or Camp Formula
Jose Blauw, Manager, Netherlands, Member
Dear Anuj,
As all mathematics, the formule represents a theory, in this case: the sum of ordering (or set-up) costs and storage costs (as a % of ...Sign up
 

 
Limitations of This Formula
ANUJ KUMAR SHRIVASTAVA, Manager, India, Premium Member
@Jose Blauw: Thanks for the explanation. In practice we use many of the factors here on the basis of some assumptions...Sign up
 

 
 

Special Interest Group Leader

Interested? Sign up for free.


Vendor Managed Inventory
Summary
Forum
Best Practices

Expert Tips

Resources
 



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2019 12manage - The Executive Fast Track. V15.0 - Last updated: 22-1-2019. All names of their owners.