Calculating Order Cycle Using Economic Order Quantity Formula

How can the time between orders (order cycle) be calculated using the economic order quantity formula?

What is the economic order quantity (EOQ) and how is it calculated?

Calculating Order Cycle Using EOQ Formula

The time between orders, also known as the order cycle, can be calculated using the economic order quantity (EOQ) formula. The EOQ is calculated based on the annual demand, cost per order, and carrying cost per unit.

To calculate the order cycle, we first need to find the EOQ using the formula: EOQ = √((2 * Annual Demand * Cost per Order) / Carrying Cost per Unit). In this scenario, the restaurant uses 62,500 boxes of napkins annually, with a cost of $200.00 per order and a carrying cost of $1.00 per unit.

By plugging in the values, we can calculate the EOQ to be approximately 11,180.34. Once we have the EOQ, we can then determine the order cycle using the formula: Order cycle = (EOQ / Daily Demand) * 365.

The daily demand is the annual demand divided by the number of days the restaurant is open (365 days). After calculations, the order cycle is found to be approximately 23,912.55 days.

Therefore, the time between orders, or the order cycle, for the restaurant is approximately 23,912.55 days based on the economic order quantity calculation.