Calculation of Economic Batch Quantities or Economic Order Quantities (EOQ EBQ Calculation)

Calculation of Economic Batch Quantities or Economic Order Quantities (EOQ EBQ Calculation)

When Production managers make decisions, one of the most important quesitons to be answered is how many products should be produced in a particular production batch. (Especially for Batch production companies). This number may be calculated quickly by Economic Batch quantities. The idea of Economic Batch Quantity may also be used for procurement management purposes. Purchasing departments should make use of Economic Order Quantity idea when buying the raw materials. The theory is valid with certain assumptions. It will not usually give right results in case of price breakdowns (price discounts) in case of procurement management. Since price breakdowns are not an issue with production setups, EBQ is a good tool for production managers.

There are 2 cost parameters to decide economic order quantity. One is the inventory holding cost, another is order cost. Order (or setup) cost decreases dramatically with number of order size. However, the economic batch quantity will be somewhere before the maximum order size due to inventory holding cost which increases linearly.

You can calculate Economic Order (or Economic Batch) Quantities from the following link:- Economic Order Quantity (EOQ) Calculation in Production Planning