Inventory Management - EOQ vs ROP ????

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Running a business is all about keeping the wheels turning smoothly, and that includes managing your inventory effectively.

In completion of our posts discussing the terminologies & abbreviations used in ?????????????????? & ???????????? ?????????? fields, today we will be discussing the difference between #EOQ & #ROP

?? EOQ: Economic Order Quantity - The Champion of Cost Efficiency!

That's #EOQ! It's a fancy formula that helps you determine the ideal order quantity to ???????????????? ?????? ?????????? ???????? ???? ?????????????? ??????????????????. Think less money wasted on storage space and more profit in your pocket!

?? Here's what ?????? ??????????????????:

? Demand:?How many units of your product do you sell?

? Ordering Cost:?How much does it cost to place an order (think processing fees or shipping)?

? Holding Cost:?How much does it cost to store your inventory (think warehouse space, insurance)?

?? By calculating the EOQ, you can order the optimal amount to avoid:

? Overstocking:?Having too much inventory sitting around collecting dust and eating away at your profits.

? Stockouts:?Running out of a product and disappointing customers

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? EOQ = The square root (√) of 2x (annual demand in units, multiplied by order cost per purchase order), divided by annual holding cost per unit.

?? ROP: Re-Order Point - The Guardian Against Stock-outs!

It's a predetermined level of stock that triggers an order when your inventory dips below that point. This ensures you have enough products on hand to meet customer demand until your next order arrives.

?? Here's what ?????? ??????????????????:

? Lead Time: How long does it take for your order to arrive after you place it?

? Safety Stock: A buffer of extra inventory to account for unexpected fluctuations in demand or delays in delivery.

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? Reorder point (ROP) = Average sales per day x Lead time + Safety stock

So, Who Wins? It's a Teamwork Victory!

Here's how they work together:

1. Use the EOQ formula to determine the ideal order quantity.
2. Set your ROP level at a point that considers your lead time and safety stock needs.
3. When your inventory level falls below the ROP, place an order for the EOQ amount.