As we have seen earlier the business has developed a new product but has no idea how many units to produce. The best estimate is to get the input of the sales team who collates all the potential sales volumes from their respective customers and then build it up to get a total volume of units required. This can be done by region, by country, by area all depending on the size of the business. This is still a very risky way of getting information because some customers will want to buy the product the moment they can touch it and hold it in their hands. People are very hesitant and don’t want to commit of a picture or a catalogue.
It becomes much easier when the product or goods has been produced on a continuous basis. Then you have a history …show more content…
Although this formula dating back to 1913 is extremely well known, it can only be used as a very quick guideline. In the modern trading era this formula has been well-debated, resulting in a more accurate formula to use in business.
The historical formula assumes that the cost of the act of ordering is the one key business driver. It certainly was an important factor back in 1913 when an army of clerks was required to manually keep track of the books, but with inventory management software and EDI, this factor is usually insignificant. As a result, the "optimisation" performed by the formula makes little sense, and completely ignores any price break or discount that can be available when larger quantities are ordered. Thus, the newer version of the EOQ formula optimizes the trade-off of carrying costs vs. volume discounts.
Let's introduce the variables: Z be the lead …show more content…
The delta quantity needs to take into account both the stock on hand qhand and the stock on order qorder , which gives the relationship δ=R−qhand – qorder where R is the reorder point. Intuitively, δ+1 is the minimal quantity to be ordered in order to maintain the desired service level ρ be the per unit purchase price, a function that depends on the order quantity q.
(Source: http://www.lokad.com/economic-order-quantity-eoq-definition-and-formula)
The modernised version of this volume is then looking as follows: In the modern business worked complex algorithms in the stock optimisation programs determine the EOQ. Most important is to understand the impact and variables of different influencing factors. Good news is that the computers will do the necessary calculations for the business and the decision makers.
In late July 2014 the sales teams was asked to gather some information regarding clubs, pubs and liquor stores who will be interested in buying the new product from October 2014. After a week the different regions all submitted a 3 months forecast. The sales team was asked to continue asking all their clients about their views and potential purchased and build a forecast spanning 6 months. The roll-out was promised for early October 2014.
An extract of the forecast was as
It becomes much easier when the product or goods has been produced on a continuous basis. Then you have a history …show more content…
Although this formula dating back to 1913 is extremely well known, it can only be used as a very quick guideline. In the modern trading era this formula has been well-debated, resulting in a more accurate formula to use in business.
The historical formula assumes that the cost of the act of ordering is the one key business driver. It certainly was an important factor back in 1913 when an army of clerks was required to manually keep track of the books, but with inventory management software and EDI, this factor is usually insignificant. As a result, the "optimisation" performed by the formula makes little sense, and completely ignores any price break or discount that can be available when larger quantities are ordered. Thus, the newer version of the EOQ formula optimizes the trade-off of carrying costs vs. volume discounts.
Let's introduce the variables: Z be the lead …show more content…
The delta quantity needs to take into account both the stock on hand qhand and the stock on order qorder , which gives the relationship δ=R−qhand – qorder where R is the reorder point. Intuitively, δ+1 is the minimal quantity to be ordered in order to maintain the desired service level ρ be the per unit purchase price, a function that depends on the order quantity q.
(Source: http://www.lokad.com/economic-order-quantity-eoq-definition-and-formula)
The modernised version of this volume is then looking as follows: In the modern business worked complex algorithms in the stock optimisation programs determine the EOQ. Most important is to understand the impact and variables of different influencing factors. Good news is that the computers will do the necessary calculations for the business and the decision makers.
In late July 2014 the sales teams was asked to gather some information regarding clubs, pubs and liquor stores who will be interested in buying the new product from October 2014. After a week the different regions all submitted a 3 months forecast. The sales team was asked to continue asking all their clients about their views and potential purchased and build a forecast spanning 6 months. The roll-out was promised for early October 2014.
An extract of the forecast was as