The Economic Order Quantity EOQ model is helpful in determin

The Economic Order Quantity (EOQ) model is helpful in determining accurate inventory decisions. Discuss the major inventory costs that are used in determining the EOQ. Propose an example from your own experience or what you could imagine where EOQ could be used to improve inventory decisions. In all discussion question responses ensure that you correctly reference sources you used in researching and analyzing your response. Use appropriate scholarly citation methods.

Solution

EOQ = sqrt*(2*D*S/H)

D = Annual Demand

S = Setup cost or Ordering cost

H = Holding cost or inventory carrying cost

I work for Colgate Palmolive. We use Calcium carbonate whose annual demand is 4000 Tons

The Ordering cost is 100$ per order

The Holding cost per Ton per year is 5$

The EOQ = sqrt(2*4000*100/5) = 400 Tons

Thus, every time we use to order 400 Tons of material and store the same.

The number of orders placed per year = Annual demand/EOQ = 4000/400 = 10 orders

So, it helped to drastically improved inventory for all Raw and Packaging material along with Engineering spares