Learn how to calculate economic order quantity (EOQ) for your product, which is number of items that minimizes your total cost.
- [Lecturer] Placing an order with a supplier costs money,…and even though you might think your employee's wages…and shipping costs are essentially free,…given the value of the merchandise,…they do have a significant impact…on the cost of your orders.…In this movie, I will show you how to calculate…the economic order quantity…which is the order quantity…that minimizes the total of inventory and order costs…over the course of a year.…To calculate the economic order quantity, or EOQ,…you need to know three things.…The first is the order cost…which is also called the setup cost in the literature…and that is, as the name implies,…exactly how much it costs you to place the order.…
You can also include shipping costs, if they're predicable.…Next, we have the flow rate…and that is the minimum of supply, demand, and inputs.…As before, we will most likely go with demand…because you are buying products…to sell to your customers.…So, demand is the most likely driver.…And finally, you need to know the holding cost,…and that is how much it costs you to store inventory…
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- Drawing process flow diagrams
- Calculating process capacity
- Identifying bottlenecks
- Determining cycle time and idle time
- Calculating labor
- Calculating utilization
- Analyzing batch processes
- Calculating optimal order quantities