Economic Order Quantity Model

-------------------------------------------------
Escuela Internacional de Ciencias Económicas y Administrativas
-------------------------------------------------
Programa deAdministración de Negocios Internacionales
-------------------------------------------------
Logistics Group: 1 Date: February 16th-------------------------------------------------
Name: Claudia Navarrete Rojas Code: 200921175

The basic Economic Order Quantity (EOQ) modelThe Economic Quantity model is one of the most used inventory-control techniques. This model minimizes the total of ordering costs that are the costs of the ordering process including costs ofsuppliers, forms, order processing, purchasing, clerical support, among others, and when orders are being manufactured, this cost makes part of what is called setup cost, which is the costto prepare a machine or process for production, including the work of changing and cleaning tools. Besides, this technique also reduces the total of holding costs that are the costs to carryor keep inventory in stock over time, including obsolescence and costs related to storage like the insurance, extra staffing and interest payments.
This frequently applied technique isbased on several assumptions; some of them are mentioned bellow:
1. The demand for an item is constant and known.
2. The time between, orders are placed and receipted (lead time) isknown and consistent.
3. The receipt of inventory is immediate and thorough.
4. Quantity discounts are not possible.
5. Setup or ordering costs and holding costs are the onlyvariable costs.
6. When orders are place at the right time, shortages can be totally avoided.
Hence, the graph of inventory usage over time has a sawthooth shape as is shown in the figure:...