Eoq and Moq
Q 1. EOQ and MOQ are supplier-related terms, where EOQ shows the costs a supplier has that are associated with purchasing goods and MOQ shows the amount of goods required for purchase to pass on to the supplier’s customers.
EOQ - Economic Order Quantity
EOQ is basically an equation used to determine inventory stock. It figures the ideal quantity to order that a particular supplier should maintain in warehouse, determined by a consistent cost for production, demand, etc. It basically figures out the best numbers for a supplier to produce in the chain of supply and demand in order to make a profit. Its purpose is to help maintain a consistent inventory and to keep costs low.
Basically, a supplier has to figure out if purchasing a large amount of goods will actually lower the unit cost weighed against the cost of having to store the goods for a long time. This is the balancing act a supplier must make: cost to carry vs. cost to order.
The equation looks like this:
EOQ=2*(annual usage units)*(order cost)/(cost to carry per unit annually)
Terms Defined
Annual Usage: Simply put, this amount is made up of the supplier’s annual estimated or forecasted number of goods they expect to order/use.
Order Cost: This cost generally stays unchanged through each order process. This is not the cost of how many products are ordered but the costs associated with ordering that incur. In this part of the equation, a supplier will factor in things like costs associated with entering the order, the approval process, any inspections, vendor costs, etc.
Carrying Cost: This cost is the total expenses associated with the purchase of the inventory of goods acquired and the costs associated with storing the goods. The elements that make up carrying costs are things like interest, insurance, taxes, and cost to store.
A supplier can use this equation to effectively determine the most
EOQ - Economic Order Quantity
EOQ is basically an equation used to determine inventory stock. It figures the ideal quantity to order that a particular supplier should maintain in warehouse, determined by a consistent cost for production, demand, etc. It basically figures out the best numbers for a supplier to produce in the chain of supply and demand in order to make a profit. Its purpose is to help maintain a consistent inventory and to keep costs low.
Basically, a supplier has to figure out if purchasing a large amount of goods will actually lower the unit cost weighed against the cost of having to store the goods for a long time. This is the balancing act a supplier must make: cost to carry vs. cost to order.
The equation looks like this:
EOQ=2*(annual usage units)*(order cost)/(cost to carry per unit annually)
Terms Defined
Annual Usage: Simply put, this amount is made up of the supplier’s annual estimated or forecasted number of goods they expect to order/use.
Order Cost: This cost generally stays unchanged through each order process. This is not the cost of how many products are ordered but the costs associated with ordering that incur. In this part of the equation, a supplier will factor in things like costs associated with entering the order, the approval process, any inspections, vendor costs, etc.
Carrying Cost: This cost is the total expenses associated with the purchase of the inventory of goods acquired and the costs associated with storing the goods. The elements that make up carrying costs are things like interest, insurance, taxes, and cost to store.
A supplier can use this equation to effectively determine the most