Economic Order Quantity (EOQ) and Effective Inventory Management

Overview

Economic order quantity (EOQ) is the order quantity of inventory that minimizes the total cost of inventory management.

Two most important categories of inventory costs are ordering costs and carrying costs. Ordering costs are costs that are incurred on obtaining additional inventories. They include costs incurred on communicating the order, transportation cost, etc. Carrying costs represent the costs incurred on holding inventory in hand. They include the opportunity cost of money held up in inventories, storage costs, spoilage costs, etc.

There is also a cost for each unit held in storage, commonly known as holding cost, sometimes expressed as a percentage of the purchase cost of the item.

We want to determine the optimal number of units to order so that we minimize the total cost associated with the purchase, delivery and storage of the product.

The required parameters to the solution are the total demand for the year, the purchase cost for each item, the fixed cost to place the order and the storage cost for each item per year. Note that the number of times an order is placed will also affect the total cost, though this number can be determined from the other parameters.

Training Outcomes

Upon successful completion of this Training;

o   Attendees will learn how the stores function affects and contributes to both the profitability and efficiency of an organization and the importance of controlling inventory.

o   Contemporary methods and techniques for the efficient storage of inventory are explained along with emphasis on practical issues such as security, stock accuracy, optimizing the use of space, reducing surplus and obsolete stock and stocktaking.

o   Identify and correct problem areas in your inventory management systems.

o   Discuss various techniques for safely and effectively managing inventories and optimizing services to clients.

o   Provide for effective management, including disposal, of surplus, scrap and excess inventory. 

Who Should Attend 

·       Employees with supply responsibilities in organizations in the private, public and governmental sectors.

·       Factory and inventory control professionals, manufacturing and production control managers, industrial engineers, plant managers, material and purchasing managers, factory manager and customer/technical service managers who can benefit from enhancing their inventory management techniques

·       Logistics managers and personnel

·       Warehouse managers and personnel

·        Intended for Finance, procurement, and supply chain professionals looking for ways to become more effective and efficient by improving their inventory management methodologies.

Training Contents

Session - 1

o   What is an 'Economic Order Quantity – EOQ?'

o   How Inventory Impacts Cash-Flow Planning

o   Factoring in a Reorder Point

o   Example of Using EOQ

o   'Carrying Cost Of Inventory'

o   Total Cost of Ownership

o   'Days Sales Of Inventory - DSI'

Session - 2

o   Inventory and inventory management

o   The three pillars of inventory management

o   Inventory planning pyramid

o   Inventory Turnover

o   Management of inventory in business systems

o   The cost of inventory and the ability to react to change

o   Inventory management in the supply chain

Session – 3

o   Business system development

o   The building blocks of MRPI, MRPII and ERP

o   ERP implementation and management

o   Inventory planning at its simplest

o   Complexity in managing inventory in MRPI and MRPII

Session -4

o   Traditional thinking in inventory optimization

o   Determining the order size

o   Protecting against supply and demand issues

o   Using Pareto to plan inventory using cycle and safety stock

o    K-curve methodology

o   Creating a composite curve

o   Testing the different options for inventory classes

Methodology

Interactive Lectures, Individual and Group Dialogue, Power point presentation. Video Exposure. Lecture Sheets.