This was an A paper
Scheduling Pg.2
Raw Material LRM
Raw material is ordered in lots arriving at specific times but, consumed uniformed
uniformly over a period. There are two types of costs involved in the process. One is the
ordering cost, which is fixed per order and the other is the inventory holding cost, which
depends on the average inventory level. The larger each order quantity, the fewer the
number of orders placed in a year and hence, the lower the annual ordering cost. However
large order quantities lead to higher levels of inventory and therefore higher annual
inventory holding costs. Unfortunately, the ordering cost is incurred by the purchase
department and the inventory holding cost by the operations department. The director of
purchasing is reducing his department*ƒ*…½*ƒ”€¡s cost (by having a large order
quantity) while increasing the operation department*ƒ*…½*ƒ”€¡s cost. (Stevenson, 2007)
Both departments should be working towards minimizing the total cost to the company.
Hence, the economic order quantity (EOQ) should be determined such that the total cost to
the company is minimized. The EOQ method does exactly this and hence, is ideal for
calculating the optimum order quantity. It is simple to use and the assumptions it is based
on are valid in this case. It is applied to a single product and process. The demand rate of
the input is uniform over the usage period. The lead time for delivery of inputs is constant.
Each order is received as a single delivery. There are no discounts for placing larger orders.
(Stevenson, 2007)
