Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

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.

Continuation from previous subsection (11.4.3)

A practical implementation scheme, which takes both total costs and short lead time into account, is provided in Figure

Fig.       Practical implementation of the EOQ formula.

The minimum order quantity (or maximum order quantity) is an order quantity modifier, applied after the lot size has been calculated, that increases (or limits) the order quantity to a pre-established minimum (or maximum) ([ASCM22]).

Differentiated considerations concerning the minimum and maximum order quantity can be found in Figure, as, for example, related to item groups or even individual items.

Fig.       Several factors that influence a maximum or minimum order quantity.

In the literature, there are models that take more operating conditions into consideration. We will present several of these in Section 11.4.4. Because of its simplicity, however, the EOQ formula is used frequently in current practice. Even if the simplified model assumpti­ons that underlie it are not given in the concrete case, the formula is very robust in the face of such deviations, as we have shown. Before applying a more complicated calcula­tion method, materials management should clarify whether the more costly batch size determination truly offers crucial advantages over the simple implementation considerations outlined above.

Course section 11.4: Subsections and their intended learning outcomes