Inventory control techniques : Economic Order Quantity (EOQ)

This presentation explains the concept of EOQ(Economic Order Quantity) a fundamental inventory management tool used to determine the optimal order quantity that minimizes total inventory cost.

1. EOQ (ECONOMIC ORDER QUANTITY)

2. GUIDED BY:- Miss Guptanjali Sahu Assistant Professor SoPLS PRESENTED BY:- Mr. Surya Narayan Das

3. CONTENT HISTORY EOQ formula FACTORS Application & Limitation Case Study CONTENT

4. CONTENT HISTORY EOQ formula FACTORS Application & Limitation Technological Advance

5. Makes Management between DEMAND and SUPPLY GOOD INVENTORY MANAGEMENT Makes GOOD CASHFLOW

6. ‘EOQ’ stands for Economic Order Quantity, a fundamental concept of inventory management . It determines the ideal order quantity a company should purchase to minimize the inventory.

7. FORD IIT & IIM EOQ

8. The Economic order Quantity (EOQ) formula was developed first developed by Ford Whitman Harris (a American production engineer) in 1913 . In 1950-1600s ,in India SAIL in public sector, IIT &IIM in academic section, Tata group in large Indian manufacturing.

9. Large cap companies Sun pharmaceuticals Dr. Reddy’s Laboratories Cipla Ltd. Lupin Ltd Aurobindo Pharma Ltd Midcap companies Alkem Laboratories Ltd. IPCA Laboratories Ltd. Granules India Ltd. Ajanta Pharma Ltd. Indico Remedies Ltd . Smallcap companies Jubilant Pharmova Ltd. Natco pharma Ltd. Alembic Pharma Ltd. Alcobex Pharma Ltd. Laures Labs Ltd. Pharma companies also uses EOQ in their Business

10. Large cap companies Sun pharmaceuticals Dr. Reddy’s Laboratories Cipla Ltd. Lupin Ltd Aurobindo Pharma Ltd Midcap companies Alkem Laboratories Ltd. IPCA Laboratories Ltd. Granules India Ltd. Ajanta Pharma Ltd. Indico Remedies Ltd . Smallcap companies Jubilant Pharmova Ltd. Natco pharma Ltd. Alembic Pharma Ltd. Alcobex Pharma Ltd. Laures Labs Ltd.

11. EOQ Formula EOQ   Where, EOQ=Economic Order Quantity D=Annual demand(units per year) S=Ordering cost per year H=Holding cost per unit per year Demand(D): How many units are needed in a year. Ordering cost(S):Cost incurred every time to place an order(e.g. Labor, shipping, communication, paperwork) Holding cost(H):Cost to store one unit for a year(e.g. warehousing, depreciation, insurance).

12. -:EXAMPLE OF USE OF EOQ:- Suppose a company sells 5,000 units per year of a product. Each time they place an order ,it costs them 1rs/- and holding cost per unit per year is 4rs/- . Now calculate the EOQ ? Given, D=5,000 S=1 H=2 EOQ = =50  

13. Demand Rate Ordering cost Holding cost Purchase cost Lead Time Storage cost Inventory Turnover FACTORS AFFECTING EOQ FACTORS AFFECTING FACTORS AFFECTING EOQ

14. APPLICATION Inventory Management Cost Minimization Supply Chain Planning Space Optimization Production Planning Cash Flow Multi Item Inventory Control Vendor Negotiation Retail Fulfilment

15. APPLICATION Inventory Management Cost Minimization Supply Chain Planning Space Optimization Cash Flow Production Planning Single Item Inventory Control Vendor Negotiation Retail Fulfilment

16. LIMITATION ASSUMES : Constant Demand REALITY: Demand can seasonal, irregular, & unpredictable ASSUMES: Constant Ordering & Holding Cost REALITY :Can vary due to discount and storage ASSUMES :Single item Focus REALITY : Multi Item Focus ASSUMES : No stockout Allowed REALITY: Many business tolerate some stockout ASSUMES: Don’t assume the life span REALITY : Many product has limited life span (Expiry date)

17. TECHNOLOGICAL ADVANCE IN EOQ Inventory Management Software Real Time Inventory update Data Easy Analysis Integration with Sales & Purchase Artificial Intelligence (AI) & Machine Learning(ML) Seasonal forecasting Adoptable to market changes Reduce stockout & overstock Big Data Analysis Enhance demand forecasting Better cost analysis Can look Multiple Product Advance forecasting tool EOQ becomes dynamic Can adjust real World data Minimize Human Error

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