#### Economic Order Quantity ( EOQ )/

Economic Quantity Discount (EQD)

Economic Order Quantity ( EOQ ) serve to find the optimal value of Order Quantity that would give the lowest Total Inventory Cost . Typically , among other factors that need to be considered in deciding how much to order are

**Demand Rate**
**Ordering/Setup costs**
**Unit Costs**
**Lead Time ( i.e Time of Delivery )**
**Reorder point**
**Quantity Discount given by suppliers and**
**Amount of Desire Safety Stock required ( Assuming all Demand need to be satisfied ) .**

Given the above factors, What is the Optimal Order Quantity ? Consider the following example .

Annual Demand Rate = 2000

Ordering/Set up Cost = 200 ( e.g Administrative Costs )

Holding Cost = 20% ( e.g Insurance , Rent , embezzlement and etc)

Lead Time = 5 days

Unit Costs = 0

Safety Stock = 30 required

**Quantity Discounts**

Under such circumstances , how much should the company order that would minimize the Total Inventory Cost ?

**The Solution**

Given the above circumstances , the Economic Order Quantity ( EOQ )computed based on the criteria is estimated :-

EOQ = 160

Orders per Period = 120

Annual Set Up and Holding Cost = 2440.95 Reorder Point = 34