Economic Order Quantity with Discounts

Overview

The Economic Order Quantity with Discounts model computes the economic order quantity (EOQ) for purchased material when quantity discounts are available. The objective is to find the order quantity that minimizes the total annual cost to the purchaser. If discount information is entered, the model calculates and displays both the unconstrained economic order quantity (and Total Annual Cost) and the additional savings that could be realized if the discount offer was accepted.

Creating/Editing an EOQ with Discounts Problem

It is very important to note the units for each of the input values.

First, enter the annual holding cost (C_H) as either:

• A dollar value per unit per year
• A percentage of the unit purchase cost (e.g. 10% is entered as 10)

Next, enter any two of the following three values (the third is computed from the other two):

• Annual demand in units per year (A)
• Number of working days per year (D)
• Daily sales rate in units per day (d)

Then enter each of the following:

• Ordering cost in $ per order (C_O)
• Lead time on orders in days (T_L)
• Purchase price per unit in $ (C_P)

If the quantity discount model is desired, enter both:

• Quantity discount price per unit in $(C_P')
• Minimum (or Maximum) quantity to receive discount (Q')

QMS allows the input from one problem to be reused to solve the same (or similar) problems. Simply open or create a problem of one type, and then select the desired problem type from the drop-down box at the top of the problem input page.

is used to generate and display the solution.