Economic Order Quantity Formula


 
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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....
 

 
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 ...
 

 
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...
 

 















 


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