Eddie Davilla explains how to determine your Economic Order Quantity, EOQ, which is the order size that provides the lowest total inventory cost while meeting your production needs.
- So, how much inventory should we order? … That's one of the big questions operations managers face. … Before we start to find the answers, … let's remember that the total cost … of inventory includes buying, … holding, and ordering the inventory. … With so many cost, each with so many variables, … trying to find the best inventory order size … can be challenging and even confusing. … Not to worry though. … In operations, we have a wonderful tool, … economic order quantity. … It's the order size that will provide you with the lowest … total inventory cost. … That's exactly what we're looking for, isn't it? … So, how do we find the EOQ? … Well, EOQ is the square root of two d s over h, … where d is our annual demand. … S is the cost to place a single order, … and h is the cost to hold a single unit … of inventory for an entire year. … So let's say that through forecasting, … we find that our annual demand is likely to be 6400 units. … It costs us about $320 every time we place an order, …
- Understanding operations management
- Making key inventory decisions
- Balancing holding costs and ordering costs
- Choosing a production strategy and facility layout
- Managing waiting-line systems
- Defining quality and improving quality
- Managing business processes
Skill Level Intermediate
1. Introduction to Operations
2. Managing Inventory Basics
3. Making Products and Services
4. Managing Waiting Lines Basics
5. Quality Control Basics
6. Operations at the Office
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