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DEFINATION…
2× D × S
EOQ =
H
D = Annual demand
S = Cost per order
C = Cost per unit
H=Holding cost
ALSO KNOWN AS….
ASSUMPTUONS
Known & constant demand
Known & constant lead time
Instantaneous receipt of material
No quantity discounts
Only order (setup) cost & holding cost
No stockouts
OPTIMAL ORDER QUANTITY
&
QUANTITY DISCOUNTS
BASIC MODEL FOR FIXED REORDER QTY.
ORDER
QUANTITY
DEMAND
INVE RATE
NTO
RY
LEV
ROP
ELS
LEAD LEAD
TIME TIME
QUANTITY DISCOUNTS
Cont…
If the EOQ for the lowest unit price is feasible, compute the
total cost for this quantity at each unit price and choose the
quantity yielding the lowest total cost. Skip the remaining
steps.
Repeat step 1 through 4 for the remaining unit prices until a
feasible EOC is found or all unit prices are evaluated. If the
EOC for each unit is not feasible, choose the price break
with the lowest total cost.
The Basic EOQ
Model
Inventory Costs for
Production Order Quantity
Clean-up costs
Re-tooling costs
Adjustment costs
These costs are primarily
determined by the labor time
necessary to perform the tasks.
DIFFRENCE BETWEEN EOQ AND
POQ MODELS
Reorder
Point
( ROP )
Time
Lead Time