From the course: Excel Supply Chain Analysis: Solving Inventory Problems
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Calculate economic order quantity with back orders - Microsoft Excel Tutorial
From the course: Excel Supply Chain Analysis: Solving Inventory Problems
Calculate economic order quantity with back orders
- [Instructor] When you allow backorders, your customers can pay for products that you don't currently have in stock. Some customers will do so, but others will choose not to buy the product from you. When you calculate an economic order quantity, where back orders are allowed, you must balance the lost sales against the orders you gain when you don't have any of the product on hand. To demonstrate this technique, I will use the sample file named O2_03_BackOrderEOQ and that's an Excel workbook you can find in the chapter two folder of the Exercise Files collection. This workbook, it contains three worksheets. We're starting on Backorder EOQ. And you see a very familiar set of data in that column B. We have Setup Cost, Flow Rate, Item Cost, Inventory Percentage. We use those last two to calculate the holding cost and we combine all of those values to calculate the EOQ. Let's go ahead and do that now. So in cell B8, I'll…
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