Balance EOQ With Reorder Point
Calculate a practical EOQ and reorder point for a purchased part.
Filter F-8 has annual demand of 12,000 units, order cost of $40 per purchase order, and annual holding cost of $1.50 per unit. Lead-time demand is 500 units and safety stock target is 150 units. EOQ balances ordering cost and holding cost; reorder point covers lead-time demand plus safety stock The tempting shortcut is to order 4,000 pieces because it reduces purchase orders. That ignores holding cost and creates four months of inventory for a part that can be replenished in much smaller economic lots. Set EOQ inputs Demand D = 12,000, order cost S = $40, holding cost H…
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