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(1)
Where,
Q (Tk.) = Total value of all items ordered during a cycle.
Q
i
(Tk.) = Value of item i (in Tk.) ordered during a cycle.
A (Tk.) = Annual value of all items in the group ordered.
S = Fixed cost of placing an order for a group of items.
s
i
= Item dependent marginal cost of placing an order associated with an
additional item i.
I = Inventory carrying charge expressed as a decimal.
Q
i
= Quantity of item i ordered during a cycle.
S + s
i
= Total cost of placing an order
S = Salary of employees + Administrative expenses
s
i
= (Labor cost + Transportation cost) for individual item
S + s
i
= Tk.14600 [Data is taken from the organization]
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A =Tk. 390,176.035 [From table 1]
I = 0.1 [Given]
= BDT 337,537.2605
Q
1
(Tk) =
= BDT 45,085.983; Q
1
=
= 116.441 units
Similarly, Order quantity of each item per cycle (in table 3) is calculated.
Table 3: Order Value in BDT & Quantity of A Class Items Ordered per Cycle
Code No.
of items
Annual
demand a
i
(BDT)
Unit cost C
i
(BDT)
Annual
demand
quantity
Order size
Q
i
(BDT) Size quantity Q
i
C102 52,117.12 387.2 135 45,085.98 116.441
C047 43,831.04 387.2 114 37,917.78 97.93
C100 15,040.43 605 25 13,011.21 21.51
C001 48,702.5 121 403 42,132.03 348.2
C046 26,494.16 339 79 22,919.82 67.61
C036 32,006.92 2057 16 27,688.86 13.46
C005 38,884.56 157.3 248 33,638.63 213.85
C025 27,860.29 302.5 93 24,101.65 79.67
C037 30,734 2420 13 26,587.67 10.99
C051 17,541.37 84.7 208 15,174.86 179.16
C019 26,196.5 302.5 87 22,662.32 74.92
C011 16,480.2 181.5 91 14,256.85 78.55
C008 9,401.7 423.5 23 8,133.31 19.2
C099 4,885.38 605 9 4,226.29 6.99
Total 39,0176.04
In the Table 3, the value of Unit cost C
i
is obtained by the following way:
C
i
= Current market price + [Current market price * (11% Taxes + 10% Profit)].
For example, item C102 costs, C
i
= 320 + [320*(11%+10%)] =387.2
Table 4: Comparison between EOQ and Actual Order Quantity of A Class Items
Component
code
Economic
Order
Quantity
(EOQ)
Stocked
quantity
from
previous
year, S
E=
(EOQ-S)
Actual
Order
quantity
at (2010-
2011), A
(A-E)
Unit
Price
in
BDT
Saved
amount
BDT
C 102 116.44 5 111.44 0 -111.44 387.2 -43150
C 047 97.93 96 1.93 24 22.07 387.2 8,545.50
C 100 21.51 11 10.51 101 90.49 605 54,746.45
C 001 348.2 971 -622.8 0 622.8 121 75,358.8
C 046 67.61 148 -80.39 0 80.39 338.8 27,236.13
C 036 13.46 24 (-10.54)0 0 0 2,057 0
C 005 213.85 25 188.85 330 141.15 157.3 22,202.9
C 025 79.67 129 (-49.33)0 80 80 302.5 24,200
C 037 10.99 36 (-25.01)0 0 0 2420 0
C 051 179.16 14 165.16 250 56 84.7 4,743.2
C 019 74.92 29 45.92 100 38 302.5 11,495
C 011 78.55 92 (-13.45)0 170 170 181.5 30,855
C 008 19.2 128 (-108.8)0 0 0 423.5 0
C 099 6.99 29 (-22.01)0 30 30 605 18,150
Total 234,383
7
The relationship between Actual Order Quantity and Economic Order Quantity of A
Class items (for the year 2010-2011) is shown in the following graph:
Figure 2: Representation of Actual Order Quantity and Forecasted Quantity.
From the above figure it is shown that actual order quantity is greater than calculated
forecasted demand of items and zero actual order quantity means no order has been
placed.
5. Conclusion
A systematic ordering strategy, multiple item joint replenishment policy, is used the
economic order quantity using forecasted demand for each product of Category A
items and comparing with the existing value it has been found that the saved amount
is BDT 234,383. It has also seen that the maximum amount of product availability
can be achieved with minimum total cost. Reducing the amount of inventory, capital
tied up can also be released and this capital can be used for further improvement of
the total inventory system.
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