EOQ

Chase, Aquilano and Jacobs

Economic Order Quantity Model

OBJECTIVE:
This template can be used to calculate different values
for an EOQ model. It can also be used for models involving
stochastic demand patterns.

INPUT:

Annual Demand: D/year 500

Annual Production Rate: P/year
Unit Cost: C $300.00
Inventory charge (% of unit cost): i 0.2
Holding cost: H (if not given,H = i*C) $60.00
Ordering Cost: S $30.00
Length of year: N(months,weeks,days) 12
demand per (month,week,day): d 10
Production rate per (month,week,day): p 12
Std. Deviation/(month,week,day): sigma(d) 10
Lead TimeL L(months,weeks,days)) 1
Lead-time Standard Deviation: sigma(L) 1
Service Level, P 1
Safety Stock(if given) 1
OUTPUT:
a. Optimal Order Quantity = 22.36
b. Annual Inventory Holding Cost = $670.82
c. Annual Ordering Cost = $670.82
Annual Unit Cost = $150,000.00
d. Total Cost = $151,341.64
e. Expected # of units short per order cycle: E(z) = 0.00
f. Safety Factor - z: (use E(z) & table below) = 4.20
g. Cycle Time - T(in days) = 0.54
Number of Orders per year = 22
h. Reorder Point, R = 11.00
Safety Stock = 4.2
Length of a production run = N/A
period of pure consumption = N/A

Preliminary calculations for linear interpolation to obtain Z

E(z) = 0.00
Hi z = 4.2 E(z) = 0 Diff =
Lo z = 4.1 E(z) = 1E-05 % =

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EOQ

Diff = 0.1 Diff = -1E-05 z =

Expected Number Out of Stock versus Standard Deviation
(Normalized to a Standard Deviation of 1)
E(z) z z E(z)

0.0000 4.5 -4.5 4.5000

0.0000 4.4 -4.4 4.4000
0.0000 4.3 -4.3 4.3000
0.0000 4.2 -4.2 4.2000
0.0000 3.9 -4.1 4.1000
0.0000 4.1 -4.0 4.0000
0.0000 4.0 -3.9 3.9000
0.0000 3.8 -3.8 3.8000
0.0000 3.7 -3.7 3.7000
0.0000 3.6 -3.6 3.6000
0.0001 3.5 -3.5 3.5001
0.0001 3.4 -3.4 3.4001
0.0001 3.3 -3.3 3.3001
0.0002 3.2 -3.2 3.2002
0.0003 3.1 -3.1 3.1003
0.0004 3.0 -3.0 3.0004
0.0005 2.9 -2.9 2.9005
0.0008 2.8 -2.8 2.8008
0.0011 2.7 -2.7 2.7011
0.0015 2.6 -2.6 2.6015
0.0020 2.5 -2.5 2.5020
0.0027 2.4 -2.4 2.4027
0.0037 2.3 -2.3 2.3037
0.0049 2.2 -2.2 2.2049
0.0065 2.1 -2.1 2.1065
0.0085 2.0 -2.0 2.0085
0.0111 1.9 -1.9 1.9111
0.0143 1.8 -1.8 1.8143
0.0183 1.7 -1.7 1.7183
0.0232 1.6 -1.6 1.6232
0.0293 1.5 -1.5 1.5293
0.0367 1.4 -1.4 1.4367
0.0455 1.3 -1.3 1.3455
0.0561 1.2 -1.2 1.2561
0.0686 1.1 -1.1 1.1686
0.0833 1.0 -1.0 1.0833
0.1004 0.9 -0.9 1.0004
0.1202 0.8 -0.8 0.9202
0.1429 0.7 -0.7 0.8429

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EOQ

0.1687 0.6 -0.6 0.7687

0.1978 0.5 -0.5 0.6978
0.2304 0.4 -0.4 0.6304
0.2668 0.3 -0.3 0.5668
0.3069 0.2 -0.2 0.5069
0.3509 0.1 -0.1 0.4509
0.3989 0.0 0.0 0.3989
0.4509 -0.1 0.1 0.3509
0.5069 -0.2 0.2 0.3069
0.5668 -0.3 0.3 0.2668
0.6304 -0.4 0.4 0.2304
0.6978 -0.5 0.5 0.1978
0.7687 -0.6 0.6 0.1687
0.8429 -0.7 0.7 0.1429
0.9202 -0.8 0.8 0.1202
1.0004 -0.9 0.9 0.1004
1.0833 -1.0 1.0 0.0833
1.1686 -1.1 1.1 0.0686
1.2561 -1.2 1.2 0.0561
1.3455 -1.3 1.3 0.0455
1.4367 -1.4 1.4 0.0367
1.5293 -1.5 1.5 0.0293
1.6232 -1.6 1.6 0.0232
1.7183 -1.7 1.7 0.0183
1.8143 -1.8 1.8 0.0143
1.9111 -1.9 1.9 0.0111
2.0085 -2.0 2.0 0.0085
2.1065 -2.1 2.1 0.0065
2.2049 -2.2 2.2 0.0049
2.3037 -2.3 2.3 0.0037
2.4027 -2.4 2.4 0.0027
2.5020 -2.5 2.5 0.0020
2.6015 -2.6 2.6 0.0015
2.7011 -2.7 2.7 0.0011
2.8008 -2.8 2.8 0.0008
2.9005 -2.9 2.9 0.0005
3.0004 -3.0 3.0 0.0004
3.1003 -3.1 3.1 0.0003
3.2002 -3.2 3.2 0.0002
3.3001 -3.3 3.3 0.0001
3.4001 -3.4 3.4 0.0001
3.5001 -3.5 3.5 0.0001
3.6000 -3.6 3.6 0.0000
3.7000 -3.7 3.7 0.0000

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3.8000 -3.8 3.8 0.0000

3.9000 -3.9 3.9 0.0000
4.0000 -4.0 4.0 0.0000
4.1000 -4.1 4.1 0.0000
4.2000 -4.2 4.2 0.0000
4.3000 -4.3 4.3 0.0000
4.4000 -4.4 4.4 0.0000
4.5000 -4.5 4.5 0.0000

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 EOQ

0.00
0.00

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 EOQ

4.20
rd Deviation

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 EPLS

INPUT
#11
D/year 2000
P/year
C $25.00
i
H (if not given,H = i*C) $5.00
S $10.00
N(months,weeks,days) 250
d(avg)/(month,week,day) 8
p/(month,week,day)
Std. Deviation/(month,week,day): sigma(d)
Lead TimeL L(months,weeks,days))
Lead-time Standard Deviation: sigma(L)
Service Level, P
Safety Stock

OUTPUT
Optimal Order Quantity = 89.44272
Annual Inventory Holding Cost = $223.61
Annual Ordering Cost = $223.61
Annual Holding & Order Cost = $447.21
Expected # of units short per order cycle: E(z) = N/A
Cycle Time - T(in days) = 11.18
Number of Orders per year = 22
Reorder Point, R = 0

Expected Number Out of Stock versus Standard Deviation

E(z) z E(z) z
4.500 -4.50 2.205 -2.20
4.400 -4.40 2.106 -2.10
4.300 -4.30 2.008 -2.00
4.200 -4.20 1.911 -1.90
4.100 -4.10 1.814 -1.80
4.000 -4.00 1.718 -1.70
3.900 -3.90 1.623 -1.60
3.800 -3.80 1.529 -1.50
3.700 -3.70 1.437 -1.40

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EPLS

3.600 -3.60 1.346 -1.30

3.500 -3.50 1.256 -1.20
3.400 -3.40 1.169 -1.10
3.300 -3.30 1.083 -1.00
3.200 -3.20 1.000 -0.90
3.100 -3.10 0.920 -0.80
3.000 -3.00 0.843 -0.70
2.901 -2.90 0.769 -0.60
2.801 -2.80 0.698 -0.50
2.701 -2.70 0.630 -0.40
2.601 -2.60 0.567 -0.30
2.502 -2.50 0.507 -0.20
2.403 -2.40 0.451 -0.10
2.303 -2.30 0.399 0.00

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 EPLS

versus Standard Deviation (normalized to a standard deviation of 1)

E(z) z E(z) z
0.399 0.00 0.004 2.30
0.351 0.10 0.003 2.40
0.307 0.20 0.002 2.50
0.267 0.30 0.001 2.60
0.230 0.40 0.001 2.70
0.198 0.50 0.001 2.80
0.169 0.60 0.001 2.90
0.143 0.70 0.000 3.00
0.120 0.80 0.000 3.10

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 EPLS

0.100 0.90 0.000 3.20

0.083 1.00 0.000 3.30
0.069 1.10 0.000 3.40
0.056 1.20 0.000 3.50
0.046 1.30 0.000 3.60
0.037 1.40 0.000 3.70
0.029 1.50 0.000 3.80
0.023 1.60 0.000 3.90
0.018 1.70 0.000 4.00
0.014 1.80 0.000 4.10
0.011 1.90 0.000 4.20
0.008 2.00 0.000 4.30
0.006 2.10 0.000 4.40
0.005 2.20 0.000 4.50

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 InvApprox

D 8000
c(o) 25
I 0.1
c 5
c(h) 0.5

100-interval 40-interval 10-interval 1-interval

Order Total Order Total Order Total Order Total

Quantity Cost Quantity Cost Quantity Cost Quantity Cost
600 483.3333 800 450 880 447.2727 890 447.2191
700 460.7143 840 448.0952 890 447.2191 891 447.2169
800 450 880 447.2727 900 447.2222 892 447.2152
900 447.2222 920 447.3913 910 447.2802 893 447.2142
1000 450 960 448.3333 920 447.3913 894 447.2136
1100 456.8182 1000 450 930 447.5538 895 447.2137
896 447.2143
897 447.2154
898 447.2171
899 447.2194
900 447.2222

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 Discount

Discount Unit Unit Order Annual Annual Annual

Category Cost Holding Quantity Inventory Ordering Purchase Total
Cost Holding Cost Cost Cost
Cost
C C(h) Q* AIHC AOC DC
1 5 0.5 895 223.75 223.46 40000 40447.21
2 4.85 0.485 1000 242.5 200 38800 39242.5
3 4.7 0.47 1600 376 125 37600 38101

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