RightChain Lots | Lot Size Optimization

EOQ = [ (2 * SUC * FAD) / (ICR * UIV) ] 1/2

EOQ = Economic Order Quantity SUC = Setup Cost ($/order) FAD = Forecast Annual Demand (units/year) ICR = Inventory Carrying Rate (%/year) UIV = Unit Inventory Value ($/unit) Example Calculation If the purchase order cost for an item is $100, the forecasted annual demand is 900 units per year, the inventory carrying rate is 35% per year, and the unit inventory value is $50 per unit then the economic order quantity is… EOQ = [(2*POC*AD)/(ICR*UIV)] ½ = [(2 x $100 x 900)/(.35 x $50)] 1/2 = 10.14 units

ECONOMIC RUN QUANTITY