Manufacturer : User Solutions, Inc
Excel based inventory management templates include: Economic order quantity, EOQ with backorders, EOQ with quantity discounts, EOQ for production lot sizes, and Reorder points and safety stocks (ROP).
The purpose of the EOQ model is simple, to find that particular quantity to order which minimizes the total variable costs of inventory. Total variable costs are usually computed on an annual basis and include two components, the costs of ordering and holding inventory. Annual ordering cost is the number of orders placed times the marginal or incremental cost incurred per order. This incremental cost includes several components: the costs of preparing the purchase order, paying the vendor's invoice, and inspecting and handling the material when it arrives. It is difficult to estimate these components precisely but a ball-park figure is good enough. The EOQ is not especially sensitive to errors in inputs.
Operations Manager
EOQBACK
Overview
Backorders are common in inventories held for resale to customers. The EOQ model can be modified to handle backorders by including one more cost, the cost per unit backordered. This cost is extremely difficult to assess. In theory, the backorder cost should include any special cost of handling the backorder, such as the use of premium transportation, and any cost associated with loss of customer goodwill. As a surrogate for the true backorder cost, most companies use the profit per unit.
The backorder model works well for Ryan because financing the inventory is so expensive. It is much less expensive to incur backorders and fill them when the EOQ arrives than it is to hold inventory. Of course, this is a risky policy and the backorder model must be used with caution. The model assumes that customers are willing to wait on backorders and are not lost to the company. If customers are lost, then the model is inappropriate. There are other models that account for lost customers but they are rarely used in practice because of the risks involved.
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