The best time to order is when it is most cost-effective to place an order for replenishment to maintain inventory. To calculate this point in time, there is a simple formula for which the following quantities are important:
Annual requirement (average quantity used)
Order costs per order
Inventory costs per unit per year
The EOQ formula can be used with these values:
This formula indicates when it is most economical to place an order to minimize inventory costs and order costs.
What is the difference between order point and order rhythm process?
Ordering point: The order point defines a specific inventory, which, when reached, an order is triggered to replenish the inventory.
Order rhythm process: In the order rhythm process, orders are placed at fixed times or at fixed intervals, regardless of the current inventory quantity. The time of ordering is not determined by the current inventory, but by the specified time.
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