The basic economic order quantity calculation assumes orders are delivered immediately, which is unrealistic. You need to consider the time between placing an order and when it’s delivered to accurately judge your needs.
- [Instructor] The basic economic order quantity calculation…assumes that orders are delivered immediately,…which is unrealistic.…You need to consider the time between placing an order…and when it's delivered to accurately judge your needs.…In this movie I will show you two ways…to account for lead time.…My sample file is the Lead Time workbook,…and you can find it in the chapter four folder…of your exercise files collection.…I started by calculating my economic order quantity.…That is the order quantity that minimizes…the total of my setup cost and the holding cost…for the inventory.…
The values that I used are in cells…B3 through B5, setup flow rate per week and holding cost.…And I used that data to calculate the EOQ…in cell B6.…So it's about 1,420 units.…I also calculated my demand per year of 109,020.…I just multiplied weekly demand by 52.…I then calculated my number of orders per year…and the days between orders.…I've added one other element,…and that is the lead time.…
Lead time is the amount of time it takes…
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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