Using correct order cost to determine EOQ

When understanding the true order size savings of finding the correct amount for an ordering cost, the true order size savings is not just the ratio between the original and the new cost.  It is actually the square root of the two costs put into ratio form.

In other words, take the square root of the old ordering costs:
SQRT($82)=9.0554
And the new, correct, ordering costs:
SQRT($42)=6.4807

Find the ratio between the square root of the two ordering costs:
9.0554/6.4807=1.3972

This ratio is the ratio can be used to find the relation between the old EOQ and the new EOQ without having to use the EOQ formula.  This can be used to know the % change of the new EOQ, as well.

The two EOQ are not related in this way:

$82/$42 = 1.952

Increasing Producity & Optimizing Space

http://www.youtube.com/watch?v=jHZTlEPpOCA

What are the Cost Elements of Holding Stock?

Facility Costs; Inventory holding costs which includes rental on warehousing, mobile and static equipment, utilities, compliance costs e.g. for dangerous goods.

Human Capital: Cost of labor to manage the stock and to move it, handle it and count it.

Finance costs; When capital is tied up in inventories the cost of finance (interest), and/or lost opportunity cost of gaining returns elsewhere must be counted.

Management Costs; White collar personnel and IT costs Procurement Costs; Cost of purchase, including transport.

How much Inventory Should my Company Hold?

A company should hold a trillion units of inventory! Do you agree with that? What does the law of supply tell us?

One of the laws of supply of goods to a market is that companies hold enough inventory to satisfy customer demand, without holding too much. So intuitively, just the right quantities of stock to satisfy demand will minimise cost. However, when dealing with thousands of SKU's the art of balancing demand with supply is intricate. It becomes even more complex when multiple storage facilities are used, and customer service times are short and/or varied according to criticality of products.

How can we Inventory under Control?

Inventory management can often be one of the back waters of a business, but getting it wrong can wreak havoc very quickly. If your company has some of these symptoms, it might be time for an inventory review:

Too much working capital invested in inventory.
Too much slow moving or obsolete inventory.
Customer service failures and back orders due to lack of the correct stock.
Poor on shelf availability.
Warehouses crammed to the rafters with the wrong stock.
Lots of inter branch / warehouse transfers to get the right stock in the right place.
If this sounds like your company, the good news is, that improvements can easily be made without resorting to a large investment in people and systems.

If you would like help in getting your inventory under control, or just someone to bounce some ideas off, feel free to check this site regular for some more thoughts and tips.

How Much Inventory Should I Hold?
What are the Cost Elements of Holding Stock?
What is Inventory Turnover?
What is Stock Accuracy?

We will addressing the above questions shortly.

INFORMS 2008 in DC!

Just returned from the ORPA conference in DC where the annual INFORMS conference is taking place. For all interested in job placement, you might want to check out this site:
http://meetings.informs.org/DC08/jps.html

Inventory Foresting Models in a Downward Trending Economy

The two articles we read were a discussion of the different ways to forecast and account for the costs of inventory. While each article makes a case for the times the different models should be used, the discussion itself is particularly applicable to times when the world economy is unstable. With today’s 300+ point drop in the Dow industrial average, tight credit markets, and unstable consumer demand; it is even more important than ever for a company to control its costs by any method that works best in its economic situation. The actual model that is utilized to reduce the overall inventory costs is not as important as the actual reduction in costs. A company that can reduce its inventory costs can lessen the strain on its line of credit, free up working capital and give the company greater flexibility to maneuver in a less than favorable economic time, when a less well run company might just fail.