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Flashcards in EOQ and EBQ Deck (13)
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1
Q

define Inventory profile

A

a visual representation of the inventory level over time.

2
Q

The economic order quantity (EOQ) approach

A

approach to decide how much of any particular item to order when stock needs replenishing .

3
Q

how are holding costs taken into account?

A

including:
○ working capital costs
○ storage costs
○ obsolescence risk costs

4
Q

how are order costs taken into account?

A

○ cost of placing the order (including transportation of items from suppliers if relevant);

○ price discount costs.

5
Q

Holding costs equation

A

Holding costs = Holding cost x Average inventory
= Ch x Q
2

6
Q

Ordering costs equation

A

Ordering costs = Ordering cost x number of orders per period
= Co x D/Q

7
Q

notes about using the EOQ

A

Time between orders = EOQ/D

Order frequency = D/EOQ per period

8
Q

EOQ equation

A

sqr (2CoD/ Ch)

9
Q

EBQ equation

A

sqr [2CoD/ Ch(1-D/P)]

10
Q

What is EOQ +EBQ used for?

A

illustrate how much should be ordered and when

11
Q

EOQ and EBQ define

A

quantity that minimises the total cost

12
Q

EOQ vs EBQ

A

EOQ = immediate and full replacement
usually external supplier

EBQ = gradual replacement
usually Internal supplier

13
Q

what does the EOQ formula tell us?

A
  • The greater the cost of ordering, the greater the suggested order size.
  • The greater the cost of inventory, the lower the suggested order size.
  • The greater the demand, the greater the suggested order size, as you may easily understand
  • The cost of supply (P*D) does not play any role in the identification of the EOQ. it pushes the total cost up or down - but does not affect the slope of the curve.