Why is There a Constant of “24” in the EOQ Formula?

Published on: July 15, 2017

When you replenish the stock of an item, you must decide how much you should order.  Many computer systems utilize the economic order quantity (EOQ) formula in helping to make this decision.  The formula was originally developed by Ford W. Harris in 1913.  Since that time, there have been many refinements and derivations of the […]

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How Do You Know if Your Software Is Set Up Correctly? Part III

Published on: January 15, 2016

In the current series of articles we are working through how to optimally set parameters in your replenishment software. There are four critical factors that determine how successful you are in having the right quantity of the right item at the right location at the right time: • The forecast • The anticipated lead time […]

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How Do You Know if Your Software Is Set Up Correctly? Part 2

Published on: December 15, 2015

In the current series of articles, we are looking at how to best set parameters in your replenishment software. There are four critical factors that determine how successful you are in having the right quantity of the right item at the right location at the right time: The forecast The anticipated lead time Safety stock […]

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Planning Isn’t Perfect

Published on: July 15, 2015

A lot of software packages advise buyers to purchase enough stock so that the product demand is met during the “replenishment horizon”. The replenishment horizon is equal to the sum of: • Demand during anticipated lead time • Demand during the upcoming order cycle • Safety stock The anticipated lead time is the amount of […]

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Handling Items with Sporadic Usage

Published on: April 15, 2015

Over the last several months, we have been discussing barriers to achieving lean inventory management. That is, having inventory arriving “just in time” when it is needed by a customer or for use in an assembly or repair. Successful lean distribution is dependent on two factors: • Known future demand of products • Consistent lead […]

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Don’t Manually Round Your Maximum Quantities

Published on: November 12, 2012

I was reviewing replenishment parameters for several inventory items with a client this week.  We ran across an item where a buyer had established a minimum stock level of 10 pieces and a maximum stock level of sixty pieces.  The item is typically sold 10 pieces at one time so I understood the minimum of […]

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How Much Customer Service Insurance Do You Need?

Published on: September 19, 2012

Computer systems maintain the stock of inventory items with parameters such as minimum and maximum quantities. Some of these parameters are objective – that is, there is one right or optimum answer. For example, an economic order quantity balances the actual cost of a product, inventory carrying costs, and costs of purchasing to determine the […]

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Improve Cash Flow: Don’t Always Buy the Economic Order Quantity

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A few months ago we published an article entitled “Trimming Inventory While Maintaining a High Level of Customer Service.” In that article, we suggested that you “micro-manage” your fast-moving products by ensuring that forecasts are accurate and that the “safety stock” is monitored. In this article, I am advising you to reevaluate the Economic Order […]

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The Minimum Quantity Is Not a Minimum Quantity

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I received a call from a customer this week saying that the minimum quantities in his computer system were far too high. Joe explained, “We normally sell four pieces of product #A100 per month. The computer system has a minimum quantity set at eight pieces. If we kept a minimum of eight pieces in inventory, […]

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Accurate Anticipated Lead Times Prevent Stockouts

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Over the next few months, we will discuss setting meaningful replenishment parameters. Today’s article deals with the importance of setting accurate anticipated lead times. The anticipated lead time is the amount of time (usually expressed in days) we estimate it will take to replenish our stock of an item from the primary source of supply. […]

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