Inventory Economic Order Quantity Model

1
Inventory Economic Order Quantity Model

• Order quantity x items
• Demand Rate d items/week
• Ordering cost b ( for every order placed)
• Price for each item (to buy) p (/item)
• Cost of holding one item in inventory for one
  week h (/item/week)
• Total Planning Horizon 52 weeks

2

• Cost of an order over (x/d) weeks b px
• Proportionality gt Linearity
• Holding cost over (x/d) weeks h(½)(x/d)x

3
Cost of an order over (x/d) weeks b px
Holding cost over (x/d) weeks
h(½)(x/d)x Total Cost over (x/d) weeks b px
h (½) (x/d)x Total Cost per week b(d/x) pd
h (½) x Set derivative to zero x
sqrt(2bd/h)