Hey, Dr. Morpurgo. Can you explain the concept of annual holding costs? Why are we using EOQ/2 * Ch (holding cost per unit)? Shouldn't we also multiply this by the number of orders for the year? So holding costs are, for example, 200/2 * 2=$200, but we also multiply this by 10 (nr. of orders) as we are holding this number 10 times a year - thus incurring the costs 10 times. Am I completely misunderstanding the concept? Thanks
Hi there. The EOQ is the point at which the annual holding costs and order costs are equal. By taking the EOQ and dividing by 2 this assumes the average inventory is drawn down on a linear basis over the year (this is a key assumption of the model). So if your EOQ is 1,000 units, then if you draw the inventory down evenly throughout the year, you would have zero inventory left and no holding cost. So the average inventory factors in the cost of holding the average amount of inventory of 500 units per year. The number of orders per year is part of the other half of the EOQ model relating to holding costs. Hope this helps. Mark
I cant get to the 493,71. In order to get to 493.71; Is it 2x19500 = 3900, as well as 2x25 = 50?. Then 39000 + 50 / 4? PLEASE, can you show exactly how you got to 493.71? Can you write it out? Thank you.
Hello, I have given a homework by my lecturer. This is the question: The Speedy Grocery Store Carries a particular brand of coffee that has the following characteristic: Sales= 10 cases per week Ordering cost=10 per order Carrying cost = 30% per year Item cost = 80 per case a. How many cases should be ordered at a time? b. How often will coffee be ordered? c. What is the annual cost of ordering and carrying coffee? What is the formula for this question? Can I know the formula?
Operations Management: Sustainability and Supply Chain Management, Third Canadian Edition by Heizer, Render, Munson, and Griffin ISBN 978-0-13-483807-6
Hello, if i am told the business has a daily demand of 35 and that they operate or work for 252 days out of the year wha is the total demand for the year?
4:40 I think u meant the ordering cost s equals 30$, and not "the holding cost" .
Yes, you are correct, I meant to say Order cost. Thank you for catching that.
Hey, Dr. Morpurgo. Can you explain the concept of annual holding costs? Why are we using EOQ/2 * Ch (holding cost per unit)? Shouldn't we also multiply this by the number of orders for the year? So holding costs are, for example, 200/2 * 2=$200, but we also multiply this by 10 (nr. of orders) as we are holding this number 10 times a year - thus incurring the costs 10 times.
Am I completely misunderstanding the concept?
Thanks
Hi there. The EOQ is the point at which the annual holding costs and order costs are equal. By taking the EOQ and dividing by 2 this assumes the average inventory is drawn down on a linear basis over the year (this is a key assumption of the model). So if your EOQ is 1,000 units, then if you draw the inventory down evenly throughout the year, you would have zero inventory left and no holding cost. So the average inventory factors in the cost of holding the average amount of inventory of 500 units per year. The number of orders per year is part of the other half of the EOQ model relating to holding costs.
Hope this helps.
Mark
I cant get to the 493,71. In order to get to 493.71; Is it 2x19500 = 3900, as well as 2x25 = 50?. Then 39000 + 50 / 4? PLEASE, can you show exactly how you got to 493.71? Can you write it out? Thank you.
Hi Christy,
You have to take 2 × 19500 × 25 ÷ 4 which equals 243,750, THEN take the square root of that, so √243750 = 493.71
Hope this helps.
Mark
Hello, I have given a homework by my lecturer.
This is the question:
The Speedy Grocery Store Carries a particular brand of coffee that has the following
characteristic:
Sales= 10 cases per week
Ordering cost=10 per order
Carrying cost = 30% per year
Item cost = 80 per case
a. How many cases should be ordered at a time?
b. How often will coffee be ordered?
c. What is the annual cost of ordering and carrying coffee?
What is the formula for this question? Can I know the formula?
Search for EOQ or economic order quantity
@@The_Business_Doctor can i know the answer sir ? I cannot understand.
Which text book are you referring to?
Operations Management: Sustainability and Supply Chain Management, Third Canadian Edition by Heizer, Render, Munson, and Griffin ISBN 978-0-13-483807-6
@@The_Business_Doctor Thanks a lot.
Hello, if i am told the business has a daily demand of 35 and that they operate or work for 252 days out of the year wha is the total demand for the year?
Would it be 35 times 365 or 35 times 252
Hi there. In that situation I would base it on 252 days.
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