How to Calculate Orders Per Year and Time Between Orders – orders | EOQ | formula
How to Calculate Orders Per Year and Time Between Orders
In the previous video, I showed you how to calculate the economic order quantity, which is the number of items per order, that minimizes your overall cost. With that information in hand, you can determine the number of orders you’ve placed per year, and also the time between orders. you can click the link somewhere in this video if you havent watch it. And You can use this previous information to plan your inventory management and order processes.
To do these calculations in this video, I have make a simple workbook You can find and download it in the below link in this video collection.
The workbook that I’ve created is a streamlined version of what we used in the previous video. I have my setup costs and B3, the flow rate in B4, the holding cost to enter directly, instead of calculating in B5, and then the EOQ calculation.
You can see the formula on the formula bar. If you want it to estimate your ordering plan, then you need to know the demand per year, the orders per year, and the number of days between order. In this case orders per year, which is in cell E3, is just the flow rate for annual demand from B4. So in E3 I’ll type an equal sign, click B4 and enter, and we get 1800.
To calculate the number of orders per year, we divide the annual demand by the EOQ. And that will tell us how many times per year, we need to order. So I’ll type an equal sign, and I will divide the demand, which is in cell E3 by the EOQ, which is in cell B6 and enter. And we see that we’ll place about 8.2 orders per year. Now 8.2 orders per year isn’t very useful. So instead, what we should do is calculate the number of orders per year. And we can do that by dividing the number of days in a year, 365 by the orders per year. So in E5 I’ll type an equal sign, and we will divide the number of days in a year, 365 by the orders per year, which is in cell E4 and enter. And we see that we’ll be placing an order about every 44 to 45 days. With that information in place, we can plan our orders. And also when the inventory operations will need to be ready to receive the items that we order.