if your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $750,000 this scenario would reveal that:
This situation would demonstrate that Your order lot size exceeded the EOQ. It means that you ordered more units of a product than the EOQ model recommended.
What is lot size in EOQ?
In the context of the Economic Order Quantity (EOQ) model, lot size refers to the number of units of a product that are ordered at one time.
The EOQ is a mathematical formula used to determine the optimal quantity of a product to order at one time in order to minimize the total costs of inventory, such as the costs of holding inventory and the costs of placing and receiving orders.
If your order lot size was higher than the EOQ, it may have been due to a variety of factors. For example, you may have been trying to take advantage of bulk discounts or to reduce the number of times you need to place orders.
However, ordering more than the EOQ can also lead to higher inventory holding costs and potentially longer lead times, which can negatively impact your operations and profitability.
It is important to carefully consider the trade-offs and to determine the right balance between ordering too much and ordering too little.
