# 11.4.2b The Economic Order Quantity (EOQ) Formula

### Intended learning outcomes: Explain the economic order quantity (EOQ) formula. Describe the cost curves as a function of batch size.

Continuation from previous subsection (11.4.2)

The economic order quantity X0 is the lot size with the minimum of total costs, and it results from deriving the target function and setting it to zero, as shown in Figure 11.4.2.4.

`EOQ (economic order quantity) formula is another name for the X0 formula.`

Fig. 11.4.2.4       EOQ formula: determining the optimum batch size.

Figure 11.4.2.5 shows the cost curves that correspond to the values for C1, C2, C3, and CT as a function of batch sizes.

Fig. 11.4.2.5       Cost curves as a function of batch size.

These cost curves are typical of the EOQ formula. The minimum point for total costs lies exactly at the intersection of the curves for setup and ordering costs and carrying cost.

Continuation in next subsection (11.4.2c).

Exercise: Get used to the EOQ calculation by chosing different values for the parameters.

## Course section 11.4: Subsections and their intended learning outcomes

• ##### 11.4 Batch Sizing, or Lot Sizing

Intended learning outcomes: Produce an overview on production or procurement costs, batch-size-dependent unit costs, setup and ordering costs, and carrying cost. Explain optimum batch size, optimum length of order cycle, the classic economic order quantity formally and in practical application. Disclose extensions of the batch size formula.

• ##### 11.4.1 Production or Procurement Costs: Batch-Size-Dependent Unit Costs, and Setup and Ordering Costs

Intended learning outcomes: Differentiate between batch-size-dependent production or procurement costs and batch-size-independent production or procurement costs.

• ##### 11.4.1b Carrying Cost

Intended learning outcomes: Explain carrying cost and carrying cost rate. Produce an overview on costs of financing or capital costs, storage infrastructure costs and the risk of depreciation.

• ##### 11.4.2 Optimum Batch Size: The Classic Economic Order Quantity (EOQ)

Intended learning outcomes: Explain the concept of the economic order quantity (EOQ). Explain variables for the EOQ formula.

• ##### 11.4.2b The Economic Order Quantity (EOQ) Formula

Intended learning outcomes: Explain the economic order quantity (EOQ) formula. Describe the cost curves as a function of batch size.

• ##### 11.4.2c Optimum Length of Order Cycle

Intended learning outcomes: Present the optimum length of order cycle.

• ##### 11.4.3 Economic Order Quantity (EOQ) Formula: Sensitivity Analysis

Intended learning outcomes: Present in detail the sensitivity analysis of the EOQ calculation.

• ##### 11.4.3b Economic Order Quantity (EOQ) and Optimum Length of Order Cycle in Practical Application

Intended learning outcomes: Produce an overview on the practical implementation of the EOQ formula. Identify several factors that influence a maximum or minimum order quantity.

• ##### 11.4.4 Extensions of the EOQ Formula: Lead-Time Orientation and Discount Levels

Intended learning outcomes: Present lead-time-oriented batch sizing. Describe batch sizing considering discount levels.

• ##### 11.4.4b Extensions of the EOQ Formula: Joint Replenishment

Intended learning outcomes: Produce an overview on joint replenishment: kit materials management and collective materials management.