# 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 11.4.3.5.

Fig. 11.4.3.5       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 11.4.3.6, as, for example, related to item groups or even individual items.

Fig. 11.4.3.6       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

• ##### 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.