What is the amount of economic order?
The amount of economic order is a stock strategy that seeks to identify and maintain an ideal balance between the cost of possession associated with the inventory and the costs of the order incurred by this inventory. For the first time developed at the beginning of the 20th century F.W. Harris is an approach to the amount of economic order commonly known as the Wilson EOQ or simply Wilson formula. This is the recognition of the aggressive expansion of the use of this strategy by R. H. Wilson, a consultant who recommended this approach to his clients, and in many cases has worked with them to implement the strategy.
The aim of the strategy of the amount of economic order is to identify the point at which the costs of the order and the cost of carrying the inventory associated with the inventory at the lowest possible point. At the same time, this approach seeks to ensure that the owner of the inventory fulfills customers' orders in time. In order to identify this ideal balance, the formula uses several basic assumptions.
The first between the assumptions associated with the pattern of the amount of economic order is that the costs of the order will remain constant. It is also assumed that the demand rate will also remain constant, which is a factor that allows the seller to purchase items for inventory using repeating quantities. In addition, there is a assumption that the delivery time does not change; The delivery time applies not only to the customer's demand for delivery at a given time, but also to the supplier's ability to fill and send orders to the supplier in the amount that is consistent. Finally, there is no change in the purchase price and the full order is accepted at once, rather than in doses or segments.
The ideal situation for the seller is the ability to create an inventory used to fill in the waiting orders of customers without staying in the inventory for a long time. Assuming the materials needed to produce items for stocks arrive in time, they are processed efficiently and are placed in InveNtáře of the finished goods within a reasonable time, the costs of stocks can be significantly reduced. The finished goods are pulled out of the inventory, assigned to a specific customer's order and sent before there is much time to assess taxes according to the total value of the current inventory. Maintaining a permanent inventory as close as possible to zero will not only help minimize tax debt, but also allows the seller to work without lease, rent or otherwise run a stock point for a larger inventory. Thus, it can save a significant amount of money during the year.