fade EOQ

EOQ

is the optimal quantity (Q) that a firm should purchase every time it places an order with the aim of minimizing total inventory costs

Total Costs

Pc + Hc + Oc

Tc

D

Annual demand of the product

P

Purchase cost per unit

H

Annual holding cost per unit

i

Interest rate

Q/2

Average quantity in stock

S

Cost of placing an order

Q

Quantity purchased per order

Q formula

Optimal number of orders

n = D/Q

Number of days between orders

t=360/n

Daily demand (units per day)

d=D/360

Re-order point

ROP=dL

L

Lead time in days

Pc

The cost of acquiring (purchasing) an amount of items at a given price

Hc

Aka carrying or storage costs, the costs originated from storing items and the cost of having such unused resources (given by the profitability that such items could bring if they were not unused)

Oc

The fixed cost of making an order (e.g. shipping cost)