Guide Questions

a. What is the average invenotry and total annual inventory cost of Greenhills Computer under the present purchasing and inv
1. Average inventory (units) 125
2. Carrying cost 937,500.00
3. Ordering cost 72,000.00
4. Total inventory cost 1,009,500.00
b. How should the EOQ model be applied under the following conditions.

1. Sales under seasonal

2. Suppliers offer different levels of discount
c. Calculate the EOQ for laptop computers for Greenhills Computer using the approach recommended in (b).

d. Should Greenhills Computers take advantage of any cash discounts from Star Phils.?
e. Should the company set up a safety stock policy?
f. What are the effects of the reduction in carrying costs on the EOQ?
g. Assuming all conditions are present, what is the EOQ of laptop computers? What is the total inventory cost of Greenhills Co
h. What should Enriquez do?

Advantages

Advantage: Minimizes Storage and Holding Costs

Storing inventory may be expensive for small business owners. The main advantage of the EOQ model is the customized recom

Advantage: Specific to the Business

Maintaining sufficient inventory levels to match customer demand is a balancing act for many small businesses. Another advan

c. Calculate the EOQ for laptop computers for Greenhills Computer using the approach recommended in (b).

EOQ = 2 x S x O
C

2 x 6000 x 3000
7500
EOQ 4800 square root
 EOQ 69.28203230276

Average invty34.64101615138

Carrying Cost - 34 x 7500

259,807.62

Ordering cost = 6000/69.28

259,815.24

Total Cost = Ordering Cost + Carrying Cost

519,622.86
c.

Discount Unit Price Annual Demand Order Quantity

1% 61,875.00 6,000.00 69.28

1% 61,875.00 6,000.00 250
3% 60,625.00 6,000.00 500
5% 59,375.00 6,000.00 750
ntory cost of Greenhills Computer under the present purchasing and inventory policy? Calculate the following:

Carrying cost and ordering cost

lowing conditions.

The EOQ model assumes steady demand of a business product and immediate availability of
items to be re-stocked. It does not account for seasonal or economic fluctuations. It assumes
fixed costs of inventory units, ordering charges and holding charges. This inventory model
requires continuous monitoring of inventory levels. The effectiveness of the basic EOQ model is
most limited by the assumption of a one-product business, and the formula does not allow for
combining several different products in the same order.

ls Computer using the approach recommended in (b).

cash discounts from Star Phils.?

Yes, because there's no way to predict with 100% certainty what the inventory needs will be and there's very little chance that
s on the EOQ?
Q of laptop computers? What is the total inventory cost of Greenhills Computers?

and Holding Costs

owners. The main advantage of the EOQ model is the customized recommendations provided regarding the most economical number of un

er demand is a balancing act for many small businesses. Another advantage of the EOQ model is that it provides specific numbers particula

ls Computer using the approach recommended in (b).

x PD
1-250
251-500
501-750

Annual Production cost

371,250,000.00
371,250,000.00
363,750,000.00
356,250,000.00
the following:

s will be and there's very little chance that all deliveries from a supplier arrive in exactly the number of weeks or days that the supplier pro

garding the most economical number of units per order. The model may suggest buying a larger quantity in fewer orders to take advantage

that it provides specific numbers particular to the business regarding how much inventory to hold, when to re-order it and how many items

2x1500x3000
180
9000000
 180
50000

1%
3%
5%

Annual Carrying
cost

259,800.00
937,500.00
1,875,000.00
2,812,500.00
 Yes - If the discount exist, the EOQ quantity may not be the optimal quantity. EOQ quantity is the balance between carrying co
purchase price is not considered in EOQ quantity. So, if we have the quantity discount then sometime if we order larger quanti
purchasing cost may be greater than the extra carrying cost and ordering cost that we can save.
s very little chance that all deliveries from a supplier arrive in exactly the number of weeks or days that the supplier promises.

conomical number of units per order. The model may suggest buying a larger quantity in fewer orders to take advantage of discount bulk bu

ecific numbers particular to the business regarding how much inventory to hold, when to re-order it and how many items to order. This smoo
Annual Ordering Cost
 270000
750000
1,020,000.00

69.28, Total inventory cost = 371,769,615.24

order costs. Alternatively, it may point to more orders of fewer items to minimize holding costs if they are high and ordering costs are relativ

ng process and results in better customer service as inventory is available when needed.

EOQ = 2 x S x O x PD EOQ = 2 x S x O
C

2 x 6000 x 3000
7500
EOQ 36000000
 EOQ 4800

Average invty = 69.28

34.64

Carrying Cost - 34.64 x 7500

259,800.00

Ordering cost = 6000/69.28

86.60508083141
259,815.24

Total Inventory Cost

Total cost

371,769,615.24
372,331,500.00
365,697,000.00
359,110,500.00
and ordering costs are relatively low.

x PD EOQ = 2 x S x O
C C

2x1500x3000
180
square root 9000000
 180
50000

1-250 1%
251-500 3%
501-750 5%

519,615.24
Ordering c 3000 6000/250
3000 24
72,000.00

Carrying cost
250/2
125 7500
937,500.00
6000 24 15.20833
250

1500
 6000
250 3000

24 *3000
72000
Inventory control

Inventory control is how you manage the stock you currently have in
storage. This involves knowing your stock inside and out — how much is
available, where it is and what condition it is in. It’s also about ensuring
that you are storing stock efficiently, keeping inventory costs down and
minimising the time spent counting and controlling inventory

Why is inventory management important?

Inventory management dictates how you run your business, serve your
customers and grow sales. For businesses based around selling
products – from craft breweries to big wholesale distributors – managing
inventory efficiently is crucial

1. Run your business smoothly

2. Reliably you can fulfil orders

3.Make it easy to add new products and channels, analyse performance and empower
salespeople with up-to-date product information, so you can grow sales revenue
4. Eliminate the inefficiencies that lead to lost stock, overstocking, and stockouts —
reducing holding costs and growing margins

5. Reduce the time and manpower spent on inventory admin, saving on staff costs

Advantages
1. Minimizes Storage and Holding cost
Minimize inventory costs
Improve overall efficiency
Real-time inventory tracking 

Easily monitor your and control stock levels and know where

products are stored in your warehouse by tracking inventory in real-
time. That way, you know how much product can be shipped now,
make faster inventory ordering decisions, and communicate any
delays of out-of-stock items quickly.

Safety stock measurements

E. There are times when demand can increase suddenly or there
are issues with a supplier that can prevent you from having enough
inventory. Safety stock is simply extra inventory beyond the
expected demand. Safety stock is also often used during busy
shopping seasons like the holidays or during a big promotion
or flash sale. 

Reorder points

Instead of manually checking inventory levels to reorder products, you can set automatic reorder points that automatically pla

Disadvantages
1. Based on Assumptions
2. Complicated Math Calculations

Conclusion

By using EOQ for your ecommerce business, you can improve your overall inventory management process. By ordering the  rig

By using EOQ of Greenhill's Computer Inc., they can improve your overall inventory management process. By ordering the  righ

By using EOQ, they can improve their overall inventory mangement process. By
ordering the right amount of inventory instead of guessing what to order, you can
reduce costc, prevent stockouts, and keep their supply chain operating smoothly.
SWOT
Strength
1. They have the quality product - starplus brand that is accepted by the market.
2. Starplus was one of the laptop brands with the best value of money.
3. Greenhills Computers had its own computer-based inventory recording and control system.
Weakness
1. Limited storeroom - could not handle more than 1,000 laptops at any one time.
2. Their carrying cost of laptop computers was relatively high. (Storage, safeguards, insurance and handling cost.
3. Greenhills did not have any policy on safety stocks.
Opportunity
1. Enriquez wanted to consider EOQ model in order to improve the inventory management.
2. Enriquez also thinking to have a real safety stock policy.
3. Ability to reduced carrying cost to 10% by June next year.
Threat
1. There is competitive environment. Starplus brand was commonly available in other shops.
2. Material shortage - Greenhills don't have the safety stock policy.
nd handling cost.
 Economic Order Quantity (E
ACA 1 ACA 2
Current Policy CC - 12% Annual

1. Average inventory (units) 3000 35

2. Carrying cost 45,000,000.00 259,800.00 22,499,339.99
3. Ordering cost 18,000.00 259,815.24 22,500,660.03
4. Total inventory cost 45,018,000.00 519,615.24 45,000,000.02
EOQ 69 units
Net Benefit 17,999.98

EOQ = 2 x 6000 x 3000

62500*.12

= √4800
EOQ = 69.28
Number of order annually 6000 / 69.28 86.60
S / EOQ

Carrying Cost = 6000 x 7500 34.64 x 7500

45,000,000.00 259,800.00

Ordering cost = 6 x 3000 6000 / 69.28 x 3000

= 18,000.00 259,815.24
Economic Order Quantity (EOQ) - ACA 2
ACA 2 ACA 2
CC - 10% Annual CC - 8% Annual

38 42
237,187.50 18,751,318.31 212,150.00 15,001,270.36
237,185.40 18,751,152.29 212,139.07 15,000,497.42
474,372.90 37,502,470.60 424,289.07 30,001,767.78
76 units 85 units
7,515,529.40 15,016,232.22 2,252,434.83

2 x 6000 x 3000 2 x 6000 x 3000

62500*.10 62500*.08

√5760 √7200
75.89 84.85
79.06 70.71

37.95 x 6250 42.43 x 5000

237,187.50 212,150.00

6000 / 75.89 x 3000 6000 / 84.85 x 3000

237,185.40 212,139.07
17,268,667.05