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Order quantities - Coggle Diagram
Order quantities
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Economic-order quantity
Assumptions
- Demand is constant and known
- Purchase item in lots, batches and not continuously
- Ordering & carrying cost are constant and known
- Replacement occurs all at once
=> item quantity decreases at a uniform rate
EOQ formula
- Avg lot size inventory = order quantity/2
- Number of orders per year = annual demand/ order quantity
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Relevant cost
- Annual cost of placing orders
- Annual cost of carrying inventory
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SKU - individual items in a particular inventory
Note: the same shirt in 2 different inventories would be 2 different SKUs