Economic

EconomicOrder
OrderQuantity
Quantity[EOQ]
[EOQ]
• EOQ model was developed in
1913 by FORD W HARRIS.
• It is one of the technique of
inventory control which
minimizes total ordering and
holding cost for the year.
• The EOQ helps the company to
know the size of order i.e How
much to order?
Economic Order Quantity [EOQ]
• The goal of EOQ formula is to identify the number of
product units to ordered.
• Annual Demand = It represnts demand
for raw material or inputs for a year.
• Cost per order = It represents cost of
placing an order for purchase.
• Carrying cost = It represents cost of
carrying average inventory on annual
basis.
Assumptions underlying EOQ
• Ordering cost per order & carrying cost per unit per annum are fixed.
• Anticipated usage of materials in units is known.
• Cost per unit of the material is constant & known as well.
• The quantity of material ordered is received immediately i.e the lead time
is zero.
Advantages of EOQ
• Reduce holding cost.
• Better inventory management.
• Low ordering cost.
• Business specific.
Disadvantages of EOQ
• Based on Assumptions.
• Forecast of Accurate Demand not possible.
• Immediate Availability of Products with Suppliers.
• Requires Continuous Monitoring1
• Complicated numeric calculations.