Economic Order Quantity EOQ Essay

Having identified the above components, the EOQ can then be determined. EOQ = v [2 Co D/ Ch]. In other words, the EOQ is given by the twice the ordering cost multiplied by the annual demand divided by the holding costs per unit (Hamblin et al. 1973). It is however important to state that in determining the EOQ, some assumptions are usually made. One, that the ordering and holding costs are known and constant, that the replacement of the stock would be instant, that shortages will not be experienced and that the average level of inventory will be constant and will represent one-half of the order quantity among others (Piasecki, 2001).
Annual demand is 96,000 units. Daily demand = 20working days/month* 12 = 240 days. This implies that the shop would be open for 240 days in a year. Thus our daily demand would be [96,000/240] = 400 units.
But our EOQ for Kony is given by: [v2*40*96,000/598. 5] = 113 units represented by Q. On the other hand, our EOQ for Toshiki would be [v2* 90 * 96,000/598. 5] = 170 units also represented by Q.

This implies that 113 and 170 units are the number of units which when ordered would minimize the total ordering and holding costs should Steve decide to work with Kony and Toshiki respectively (Piasecki, 2001).
Our concern in this case however, is to get the reorder level. To calculate the reorder point; the point at which inventory should be replenished, the following approach would be necessary (Piasecki, 2001). Reorder level = dL; where d is the demand rate per period and L is the lead time. Lead time represents the time it takes from the moment the stock is ordered to the time the inventory is actually delivered (Piasecki, 2001).
The following variable are given; annual demand = 96,000 but the only 20 working days are allowed per month. This would therefore imply that the store would be open for (20 * 12) = 240 days in a year.
Thus, our daily demand would be [96,000/240] = 400 units/day. But our lead time should we opt for Kony would be 10 days thus our R = dL would be (400*10) = 4,000 units. On the other hand, the reorder level should we opt for Toshiki would be (400 * 20 * 3) = 24,000 units. This means that when the inventory reaches 4000 units, Steve would need to reorder since the stock could reach level zero after 10 days (Piasecki, 2001). From the above analyses, it can be seen clearly that the company which would best suit Steve as a supplier is Kony. Read also the Abco company manufactures electrical assemblies
As compared to Toshiki which takes up to 90 days to deliver new supplies, Kony delivers within 10 days. There are several reasons given for this. One is that fact that the company has a shorter delivery time (Terspine, 1993). One implication of a shorter lead-time is that it lowers transportation costs, which eventually reduces the costs of ordering (Piasecki, 2001). It is also important to note that the values of ordering and holding costs need to be examined and reviewed periodically owing to changes in the costs of operation (Hamblin et al. 1973).

superadmin (28431)
New York University

Hire an Expert to Help you

Hire Verified Expert

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more
Have a homework question? Get help from verified tutors now!

STAY HOME, SAVE LIVES Order your paper today and save 15% with the discount code MYHOMEWORKGEEKS30