EOQ

Example 1:

ECONOMIC ORDER QUANTITY

Demand for toothpaste at SC Drugs is 10,000 tubes per month. SC Drugs incurs a
fixed transportation cost of $100 each time an order is placed. Each tube costs $3
and SC Drugs has a holding cost of 20%. What should the optimal size of each order be?

Inputs
Demand, D =
Fixed cost per order, S =
Cost per tube, C =
Holding cost, h =
Order Size Increment =
Order
Size
800
880
960
1040
1120
1200
1280
1360
1440
1520
1600
1680
1760
1840
1920
2000
2080
2160
2240
2320
2400
2480
2560
2640
2720
2800
2880
2960
3040
3120

12000
4,000.00
500.00
20%

EOQ =

400

Annual
Order Cost Holding Cost
60000.00
40000.00
54545.45
44000.00
50000.00
48000.00
46153.85
52000.00
42857.14
56000.00
40000.00
60000.00
37500.00
64000.00
35294.12
68000.00
33333.33
72000.00
31578.95
76000.00
30000.00
80000.00
28571.43
84000.00
27272.73
88000.00
26086.96
92000.00
25000.00
96000.00
24000.00
100000.00
23076.92
104000.00
22222.22
108000.00
21428.57
112000.00
20689.66
116000.00
20000.00
120000.00
19354.84
124000.00
18750.00
128000.00
18181.82
132000.00
17647.06
136000.00
17142.86
140000.00
16666.67
144000.00
16216.22
148000.00
15789.47
152000.00
15384.62
156000.00

Total
Cost
100000.00
98545.45
98000.00
98153.85
98857.14
100000.00
101500.00
103294.12
105333.33
107578.95
110000.00
112571.43
115272.73
118086.96
121000.00
124000.00
127076.92
130222.22
133428.57
136689.66
140000.00
143354.84
146750.00
150181.82
153647.06
157142.86
160666.67
164216.22
167789.47
171384.62

Page 1

979.796

EOQ
3200
3280
3360
3440
3520
3600
3680
3760
3840
3920
4000
4080
4160
4240
4320
4400
4480
4560
4640
4720
4800
4880
4960
5040
5120
5200
5280
5360
5440
5520
5600
5680
5760
5840
5920
6000
6080
6160
6240
6320
6400
6480
6560
6640
6720
6800

15000.00
14634.15
14285.71
13953.49
13636.36
13333.33
13043.48
12765.96
12500.00
12244.90
12000.00
11764.71
11538.46
11320.75
11111.11
10909.09
10714.29
10526.32
10344.83
10169.49
10000.00
9836.07
9677.42
9523.81
9375.00
9230.77
9090.91
8955.22
8823.53
8695.65
8571.43
8450.70
8333.33
8219.18
8108.11
8000.00
7894.74
7792.21
7692.31
7594.94
7500.00
7407.41
7317.07
7228.92
7142.86
7058.82

160000.00
164000.00
168000.00
172000.00
176000.00
180000.00
184000.00
188000.00
192000.00
196000.00
200000.00
204000.00
208000.00
212000.00
216000.00
220000.00
224000.00
228000.00
232000.00
236000.00
240000.00
244000.00
248000.00
252000.00
256000.00
260000.00
264000.00
268000.00
272000.00
276000.00
280000.00
284000.00
288000.00
292000.00
296000.00
300000.00
304000.00
308000.00
312000.00
316000.00
320000.00
324000.00
328000.00
332000.00
336000.00
340000.00

175000.00
178634.15
182285.71
185953.49
189636.36
193333.33
197043.48
200765.96
204500.00
208244.90
212000.00
215764.71
219538.46
223320.75
227111.11
230909.09
234714.29
238526.32
242344.83
246169.49
250000.00
253836.07
257677.42
261523.81
265375.00
269230.77
273090.91
276955.22
280823.53
284695.65
288571.43
292450.70
296333.33
300219.18
304108.11
308000.00
311894.74
315792.21
319692.31
323594.94
327500.00
331407.41
335317.07
339228.92
343142.86
347058.82

Page 2

EOQ
6880
6960
7040
7120
7200
7280
7360
7440
7520

6976.74
6896.55
6818.18
6741.57
6666.67
6593.41
6521.74
6451.61
6382.98

344000.00
348000.00
352000.00
356000.00
360000.00
364000.00
368000.00
372000.00
376000.00

350976.74
354896.55
358818.18
362741.57
366666.67
370593.41
374521.74
378451.61
382382.98

Page 3

EOQ-Chart

Costs vs. Order Quantity

160000.00

140000.00
Annual Order Cost

Annual Holding Cost

Total Cost

120000.00

Cost

100000.00

80000.00

60000.00

40000.00

20000.00

0.00
800 1200 1600 2000 2400 2800 3200 3600 4000 4400 4800 5200 5600 6000 6400 6800 7200
Order Quantity

Page 4

Lot Sizing with Multiple Products

Demand for Product A, R A =
Demand for Product B, R B =
Demand for Product C, R C =
Unit Cost, C A =
Unit Cost, C B =
Unit Cost, C C =

$
$
$

12,000 per year

1,200 per year
120 per year

Product specific ordering cost, S A =

Product specific ordering cost, S B =
Product specific ordering cost, S C =

500.00
500.00
500.00

Common order cost, S =

Holding cost, h =

Order each product independently

A
B
C

# orders/year
10.95
3.46
1.10

Order Size
1,095
346
110

Order Cost Holding Cost

$
54,772 $
54,772
$
17,321 $
17,321
$
5,477 $
5,477
$
77,570 $
77,570

Total cost
$ 109,545
$
34,641
$
10,954
$ 155,140

Order Size
1,231
123
12

Order Cost Holding Cost

$
48,750 $
61,538
$
9,750 $
6,154
$
9,750 $
615
$
68,250 $
68,308

Total cost
$ 110,288
$
15,904
$
10,365
$ 136,558

Order all products simultaneously

A
B
C

# orders/year
9.75
9.75
9.75

Order selected subsets in each lot

Frequency multiple
A
B
C

0.50
0.20

# orders/year
10.81
5.41
2.16

Order Size
1,110
222
56

Order Cost Holding Cost

$
54,050 $
55,504
$
5,405 $
11,101
$
2,162 $
2,775
$
61,617 $
69,380

rdering cost, S A =
rdering cost, S B =
rdering cost, S C =

$
$
$

1,000
1,000
1,000

4,000
20%

9.75

Total cost
$ 109,554
$ 16,506
$
4,937
$ 130,997

10.81

safety inventory
Effect of Safety Stock on Service Level
Inputs
Average demand per unit time R =
Lead time, L =
SD of demand per unit time sR =
Lot size Q =
Intermediate calculation
Mean demand during lead time R L =
SD of demand during lead time sL =
Reorder Point Increment =
Reorder
Safety
Point ROP Inventory ss
5000
0
5010
10
5020
20
5030
30
5040
40
5050
50
5060
60
5070
70
5080
80
5090
90
5100
100
5110
110
5120
120
5130
130
5140
140
5150
150
5160
160
5170
170
5180
180
5190
190
5200
200
5210
210
5220
220
5230
230
5240
240
5250
250
5260
260
5270
270
5280
280
5290
290

2,500
2
500
10,000

5000
707
10

Cycle Service Average

Average
Level (CSL ) Inventory Flow Time
0.500
5000
2
0.506
5010
2.004
0.511
5020
2.008
0.517
5030
2.012
0.523
5040
2.016
0.528
5050
2.02
0.534
5060
2.024
0.539
5070
2.028
0.545
5080
2.032
0.551
5090
2.036
0.556
5100
2.04
0.562
5110
2.044
0.567
5120
2.048
0.573
5130
2.052
0.578
5140
2.056
0.584
5150
2.06
0.590
5160
2.064
0.595
5170
2.068
0.600
5180
2.072
0.606
5190
2.076
0.611
5200
2.08
0.617
5210
2.084
0.622
5220
2.088
0.628
5230
2.092
0.633
5240
2.096
0.638
5250
2.1
0.643
5260
2.104
0.649
5270
2.108
0.654
5280
2.112
0.659
5290
2.116

Page 7

ESC
282.09
277.12
272.21
267.35
262.55
257.80
253.11
248.48
243.90
239.38
234.91
230.50
226.15
221.85
217.61
213.42
209.29
205.21
201.19
197.22
193.30
189.44
185.64
181.89
178.19
174.54
170.95
167.41
163.93
160.49

Fill Rate
fr
0.972
0.972
0.973
0.973
0.974
0.974
0.975
0.975
0.976
0.976
0.977
0.977
0.977
0.978
0.978
0.979
0.979
0.979
0.980
0.980
0.981
0.981
0.981
0.982
0.982
0.983
0.983
0.983
0.984
0.984

safety inventory
5300
5310
5320
5330
5340
5350
5360
5370
5380
5390
5400
5410
5420
5430
5440
5450
5460
5470
5480
5490
5500
5510
5520
5530
5540
5550
5560
5570
5580
5590
5600
5610
5620
5630
5640
5650
5660
5670
5680
5690
5700
5710
5720
5730
5740
5750

300
310
320
330
340
350
360
370
380
390
400
410
420
430
440
450
460
470
480
490
500
510
520
530
540
550
560
570
580
590
600
610
620
630
640
650
660
670
680
690
700
710
720
730
740
750

0.664
0.669
0.675
0.680
0.685
0.690
0.695
0.700
0.705
0.709
0.714
0.719
0.724
0.728
0.733
0.738
0.742
0.747
0.751
0.756
0.760
0.765
0.769
0.773
0.777
0.782
0.786
0.790
0.794
0.798
0.802
0.806
0.810
0.814
0.817
0.821
0.825
0.828
0.832
0.835
0.839
0.842
0.846
0.849
0.852
0.856

5300
5310
5320
5330
5340
5350
5360
5370
5380
5390
5400
5410
5420
5430
5440
5450
5460
5470
5480
5490
5500
5510
5520
5530
5540
5550
5560
5570
5580
5590
5600
5610
5620
5630
5640
5650
5660
5670
5680
5690
5700
5710
5720
5730
5740
5750

Page 8

2.12
2.124
2.128
2.132
2.136
2.14
2.144
2.148
2.152
2.156
2.16
2.164
2.168
2.172
2.176
2.18
2.184
2.188
2.192
2.196
2.2
2.204
2.208
2.212
2.216
2.22
2.224
2.228
2.232
2.236
2.24
2.244
2.248
2.252
2.256
2.26
2.264
2.268
2.272
2.276
2.28
2.284
2.288
2.292
2.296
2.3

157.11
153.78
150.50
147.27
144.09
140.96
137.88
134.86
131.88
128.95
126.06
123.23
120.44
117.70
115.01
112.37
109.77
107.21
104.70
102.24
99.82
97.45
95.11
92.82
90.58
88.37
86.21
84.09
82.01
79.97
77.97
76.01
74.08
72.20
70.35
68.55
66.77
65.04
63.34
61.68
60.05
58.46
56.90
55.37
53.88
52.42

0.984
0.985
0.985
0.985
0.986
0.986
0.986
0.987
0.987
0.987
0.987
0.988
0.988
0.988
0.988
0.989
0.989
0.989
0.990
0.990
0.990
0.990
0.990
0.991
0.991
0.991
0.991
0.992
0.992
0.992
0.992
0.992
0.993
0.993
0.993
0.993
0.993
0.993
0.994
0.994
0.994
0.994
0.994
0.994
0.995
0.995

safety inventory
5760
5770
5780
5790
5800
5810
5820
5830
5840
5850
5860
5870
5880
5890
5900
5910
5920
5930
5940
5950
5960
5970
5980
5990
6000
6010
6020
6030
6040
6050
6060
6070
6080
6090
6100
6110
6120
6130
6140
6150
6160
6170
6180
6190
6200
6210

760
770
780
790
800
810
820
830
840
850
860
870
880
890
900
910
920
930
940
950
960
970
980
990
1000
1010
1020
1030
1040
1050
1060
1070
1080
1090
1100
1110
1120
1130
1140
1150
1160
1170
1180
1190
1200
1210

0.859
0.862
0.865
0.868
0.871
0.874
0.877
0.880
0.883
0.885
0.888
0.891
0.893
0.896
0.898
0.901
0.903
0.906
0.908
0.910
0.913
0.915
0.917
0.919
0.921
0.923
0.925
0.927
0.929
0.931
0.933
0.935
0.937
0.938
0.940
0.942
0.943
0.945
0.947
0.948
0.950
0.951
0.952
0.954
0.955
0.956

5760
5770
5780
5790
5800
5810
5820
5830
5840
5850
5860
5870
5880
5890
5900
5910
5920
5930
5940
5950
5960
5970
5980
5990
6000
6010
6020
6030
6040
6050
6060
6070
6080
6090
6100
6110
6120
6130
6140
6150
6160
6170
6180
6190
6200
6210

Page 9

2.304
2.308
2.312
2.316
2.32
2.324
2.328
2.332
2.336
2.34
2.344
2.348
2.352
2.356
2.36
2.364
2.368
2.372
2.376
2.38
2.384
2.388
2.392
2.396
2.4
2.404
2.408
2.412
2.416
2.42
2.424
2.428
2.432
2.436
2.44
2.444
2.448
2.452
2.456
2.46
2.464
2.468
2.472
2.476
2.48
2.484

50.99
49.59
48.23
46.89
45.59
44.31
43.07
41.85
40.66
39.50
38.37
37.26
36.18
35.13
34.10
33.10
32.12
31.17
30.24
29.33
28.44
27.58
26.74
25.92
25.13
24.35
23.60
22.86
22.14
21.45
20.77
20.11
19.46
18.84
18.23
17.64
17.07
16.51
15.97
15.44
14.93
14.43
13.95
13.48
13.02
12.58

0.995
0.995
0.995
0.995
0.995
0.996
0.996
0.996
0.996
0.996
0.996
0.996
0.996
0.996
0.997
0.997
0.997
0.997
0.997
0.997
0.997
0.997
0.997
0.997
0.997
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.998
0.999
0.999
0.999
0.999
0.999
0.999

safety inventory
6220
6230
6240
6250
6260
6270
6280
6290
6300
6310
6320
6330
6340
6350
6360
6370
6380
6390
6400
6410
6420
6430
6440
6450
6460
6470
6480
6490
6500
6510
6520
6530
6540
6550
6560
6570
6580
6590
6600
6610
6620
6630
6640
6650
6660
6670

1220
1230
1240
1250
1260
1270
1280
1290
1300
1310
1320
1330
1340
1350
1360
1370
1380
1390
1400
1410
1420
1430
1440
1450
1460
1470
1480
1490
1500
1510
1520
1530
1540
1550
1560
1570
1580
1590
1600
1610
1620
1630
1640
1650
1660
1670

0.958
0.959
0.960
0.961
0.963
0.964
0.965
0.966
0.967
0.968
0.969
0.970
0.971
0.972
0.973
0.974
0.975
0.975
0.976
0.977
0.978
0.978
0.979
0.980
0.981
0.981
0.982
0.982
0.983
0.984
0.984
0.985
0.985
0.986
0.986
0.987
0.987
0.988
0.988
0.989
0.989
0.989
0.990
0.990
0.991
0.991

6220
6230
6240
6250
6260
6270
6280
6290
6300
6310
6320
6330
6340
6350
6360
6370
6380
6390
6400
6410
6420
6430
6440
6450
6460
6470
6480
6490
6500
6510
6520
6530
6540
6550
6560
6570
6580
6590
6600
6610
6620
6630
6640
6650
6660
6670

Page 10

2.488
2.492
2.496
2.5
2.504
2.508
2.512
2.516
2.52
2.524
2.528
2.532
2.536
2.54
2.544
2.548
2.552
2.556
2.56
2.564
2.568
2.572
2.576
2.58
2.584
2.588
2.592
2.596
2.6
2.604
2.608
2.612
2.616
2.62
2.624
2.628
2.632
2.636
2.64
2.644
2.648
2.652
2.656
2.66
2.664
2.668

12.15
11.74
11.33
10.94
10.56
10.20
9.84
9.49
9.16
8.83
8.52
8.21
7.92
7.63
7.36
7.09
6.83
6.58
6.34
6.10
5.87
5.65
5.44
5.24
5.04
4.85
4.66
4.48
4.31
4.14
3.98
3.83
3.68
3.53
3.40
3.26
3.13
3.01
2.89
2.77
2.66
2.55
2.45
2.35
2.25
2.16

0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
0.999
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

safety inventory
6680
6690
6700
6710
6720
6730
6740
6750
6760
6770
6780
6790
6800
6810
6820
6830
6840
6850
6860
6870
6880
6890

1680
1690
1700
1710
1720
1730
1740
1750
1760
1770
1780
1790
1800
1810
1820
1830
1840
1850
1860
1870
1880
1890

0.991
0.992
0.992
0.992
0.993
0.993
0.993
0.993
0.994
0.994
0.994
0.994
0.995
0.995
0.995
0.995
0.995
0.996
0.996
0.996
0.996
0.996

6680
6690
6700
6710
6720
6730
6740
6750
6760
6770
6780
6790
6800
6810
6820
6830
6840
6850
6860
6870
6880
6890

Page 11

2.672
2.676
2.68
2.684
2.688
2.692
2.696
2.7
2.704
2.708
2.712
2.716
2.72
2.724
2.728
2.732
2.736
2.74
2.744
2.748
2.752
2.756

2.07
1.98
1.90
1.82
1.74
1.67
1.60
1.53
1.47
1.40
1.34
1.29
1.23
1.18
1.12
1.08
1.03
0.98
0.94
0.90
0.86
0.82

1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000

ss-chart

Service Level vs. Safety Inventory

1.200

Cycle Service Level (CSL)

1.000

Service Level

0.800

0.600

0.400

0.200

Safety Inventory

Page 12

Input
Average demand per unit time R =
Lead time, L =
SD of demand per unit time sR =
Lot size Q =
Desired fill rate, fr =
Intermediate Calculation
ESC =
SD of demand during lead time sL =
Result
Safety Inventory ss =
Implied ESC =

183
200

2,500
2
500
10,000
0.985

150
707