Many companies blindly purchase in large quantities to get discount prices without considering all the tradeoffs involved. The costs may well outweigh any savings in purchase price. The EOQDISC model helps you analyze quantity discount offers and make better purchasing decisions.
If you are in a position to bargain with the vendor on prices, use EOQDISC to find the breakeven price. This is the price at which you are indifferent about taking the discount because the annual costs for the standard price and the discount price are the same. You can use the breakeven price as the starting point for negotiating a better discount plan, one that benefits both vendor and customer.
Vendors sometimes offer several different price/quantity plans, so EOQDISC is set up to evaluate four discount plans at once.
Operations Manager EOQPROD Overview
Alvin Air Systems in Alvin, Texas, produces repair and maintenance items for commercial air conditioning systems. Alvincannot use the standard EOQ for determining production lot sizes.One problem is that the standard EOQ assumes that an order quantity or lot of material is received all at once. At Alvin, most production lots take some time to complete and parts are placed in stock on a daily basis until the run is over. A related problem is that substantial sales usually occur before the run is over. To solve these problems, Alvinuses the modified EOQ model for production lot sizes. Why? The EOQ must be larger than maximum investment to account for sales made during the production run.
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