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Economic Order Quantity

this presentation is all about EOQ

Shivam192
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Economic Order Quantity

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  1. ECONOMIC ORDER QUANTITY (EOQ) SHIVAM RAWAT 2402210035 BCOM PROGRAMME

  2. INTRODUCTION TO EOQ What is EOQ? Economic Order Quantity (EOQ) is a formula used to determine the optimal order quantity that minimizes total inventory costs. Why is EOQ Important? Helps businesses balance ordering and holding costs, leading to improved cash flow and inventory management.

  3. KEY COMPONENTS OF EOQ 1. Holding Costs: Costs related to storing unsold goods (e.g., warehousing, insurance) 2. Ordering Costs: Costs incurred every time an order is placed (e.g., shipping, processing). 3. Demand Rate: The rate at which inventory is sold or used over a specific period.

  4. EOQ FORMULA Formula: [ EOQ = \sqrt{\frac{2DS}{H}} ] Where: D: Annual demand (units) S: Ordering cost per order H: Holding cost per unit per year

  5. DERIVATION OF EOQ Understanding the Formula: The EOQ formula is derived from the total cost function, which includes both ordering and holding costs. Graphical Representation: Include a graph showing the relationship between total costs, ordering costs, and holding costs.

  6. BENEFITS OF USING EOQ Cost Efficiency: Minimizes total inventory costs by optimizing order quantities. Improved Cash Flow: Reduces excess inventory, freeing up capital for other uses. Better Inventory Management: Helps maintain optimal stock levels, reducing the risk of stockouts.

  7. LIMITATIONS OF EOQ Assumptions: Assumes constant demand, constant lead time, and no stockouts. Variability: Real-world factors such as demand fluctuations and supply chain disruptions can affect the accuracy of EOQ.

  8. EOQ IN PRACTICE Example Calculation: Given: Annual Demand (D) = 1,200 units Ordering Cost (S) = $50 per order Holding Cost (H) = $2 per unit per year Calculation: [ EOQ = \sqrt{\frac{2 \times 1200 \times 50}{2}} = \sqrt{30000} \approx 173.21 \text{ units} ]

  9. EOQ AND INVENTORY MANAGEMENT SYSTEMS Integration with Systems: EOQ can be integrated into inventory management software to automate order placements. Popular Tools: Mention tools like SAP, Oracle, and QuickBooks that utilize EOQ principles.

  10. CASE STUDY Company Example: Company: XYZ Electronics Challenge: High holding costs due to excess inventory. Solution: Implemented EOQ model. Results: Reduced holding costs by 20% and improved order efficiency.

  11. ALTERNATIVES TO EOQ Just-In-Time (JIT): A strategy that aims to reduce inventory holding by receiving goods only as they are needed. ABC Analysis: A method of categorizing inventory into three classes (A, B, C) based on importance and value.

  12. CONCLUSION EOQ is a valuable tool for optimizing inventory management and reducing costs. Final Thoughts: Businesses should consider EOQ as part of their inventory strategy to enhance efficiency.

  13. REFERENCES Wikipedia, google chrome.

  14. THANK YOU!

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