Although many textbooks use a restrictive formula to find economic order quantity or economic lots size, you can use tables to come up with more general formulas.
- How do we make decisions about inventory?
- Video: Economic Order Quantity
- Video: Economic Lot Size
- Handout: Economic Lot Size Cost Function
Here are more examples from class.
Problem 1 A restaurant has an annual demand for 1200 bottle of wine. It costs $1 to store one bottle for a year and $5 to place an order. Orders are made when the inventory of wine is zero. If each bottle costs $15, find the optimum number of bottles per order.
The strategy above is correct, but there is a math mistake in the last board…do you see their error?
Problem 2 If the restaurant in Problem 3 orders wine when the inventory is half of an order size, find the optimum number of bottles per order.
This problem can’t be done with the formula given in Help Me Solve This. The change in when the order is made (when the inventory drops to half the order size) leads to a different expression for the storage costs. However, once this pattern is established the cost function can be maximized as before.