Talk:Economic order quantity/Archives/2012

EOQ standard

I have added the standard EOQ formulation to this page, as well as the references to Harris's and Wilson's papers on the subject. --Myles Long 16:36, 11 Mar 2005 (UTC)

I disagree about there not being more to add. There is a lot of background info. that should probably be added. One of these days, I might get to that... --Myles Long 15:18, 25 Mar 2005 (UTC)

I changed last paragraph. What it was before that is common misunderstanging - there is no point in finding out when are these two costs equal, but to find out when they are at minimum. Please get the facts before changing this back to what it was. One needs to think it through. I know its usually even taught this way. Reason for this misconseption is that common graph, where optimum is where costs meet, and it seldom is there. Jan Tammisto —Preceding unsigned comment added by 193.185.105.214 (talk) 10:07, 2 April 2009 (UTC)

Units

Units for the input variables would be helpful. Charles Kinzer —Preceding unsigned comment added by 192.31.106.34 (talk) 00:46, 28 April 2009 (UTC)

Holding Cost

Why is the holding cost:

1. stated per month? It is similar to an interes, though should off course be higher as storage can induce a significant cost.
2. limieted to 0-1? Above 1 (100%) is perfectly possible. Below 0 might indicate items gaining rent or value, and clearly is on the edge of the formula.

/Poul

Poul, you're perfectly correct: the holding cost as a percentage of the unit cost made no sense. For example, if you make ice cream, the ordering cost of milk is the price per gallon. The holding cost is your warehouse/tank space and refrigeration cost. Holding cost has nothing to do with the unit cost. I changed the page to have a holding cost "H" that is a cost by itself, not a percentage of the unit cost. For example, the price of milk can go down, and cost of energy to refrigerate can go up. They are not related. They just add up to make up your cost of goods sold. I hope my edit helps.
Michael Hay.

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I don't know what you mean by "on the edge of the formula", but the purpose of EOQ is because holding costs are positive. You want to strike the balance between ordering too often (high fixed costs) and holding too much (high holding costs). If you were gaining value on inventory, there would be no penalty for holding too much. In fact, you would want to hold as much as you can because your inventories would appreciate over time (negative holding cost would imply this is also higher than the opportunity cost of capital). It makes no sense to use the formula in this case, so holding costs should be greater than zero. However, there should be no reason for an upper bound on the interest rate.

Price Discount

What if there is a one time Price discount being given. What would be the Order Quantity for that particular order?

Sarvshreshth

There's a modification of the EOQ for that case. I'm sure it's widely available online. --Myles Long 15:12, 15 April 2006 (UTC)

AFAIK, it's not widely available, but I just posted a variant to precisely handle the price discount at http://www.lokad.com/economic-order-quantity-eoq-definition-and-formula.ashx It might be of interest as a reference (disclaimer: this is not peer-reviewed materials). Hope it helps. --Joannes Vermorel (talk) 22:50, 6 January 2012 (UTC)

Graph

The graph is nice looking, but it seems funny to have the ordering cost blue line turn down at the right. Shouldn't it be asymptotic to the x axis? -John Pinkerton 12 October 2006

The graph is incorrect. At the optimal point the total costs is exactly twice the holding costs (i.e. the sum of the holding and ordering costs) there should be more eoq formule which is not there..Ajeet (9926314804)