Quantity Discount Economic Order Quantity (EOQ) Analysis Tools Bernard Price Certified Professional Logistician

Why Use Range Quantity Discount EOQ Analysis Tools? Quantity Discounts Commonly Applied Improved Decision Making with Better Information Saves $ - Purchases Item Quantity Meeting Demands at the Lowest Total Ownership Cost Commodity Independent Generic Version Usable by All

Purchase of 10 CCAs= 10 x $24,484 = $244,840 Purchase of 30 CCAs= 30 x $7,059 = $211,770 Vendor Quantity 1 – & UP Unit Cost $24,484 $ 7, 059 $ 6, 553 NSN (CCA) Quantity Discounts

Economic Purchase Quantities & UP Unit Cost $24,484 $ 7, 059 $ 6, 553 Buy 30 When Need 9-29 Buy 60 When Need Non-Recurring Buy Procurements Vendor Quantity 1 – & UP

Requirement: 60 Demands Per Year Forecast Alternatives: Buy 5 monthly = 5 x 12 x $24,484 = $1,469,040 Buy 30 twice = 30 x 2 x $7,059 = $423,540 Buy 60 once = 60 x $6,553 = $393,180 Recurring Demand Procurements

Best Buy Quantity Dependencies: Purchase Cost Ordering Cost Holding Costs Procurement Demand Rate Constraints/Adjustment Factors: Minimum Reorder Cycles Remaining Life Shelf Life Quantity Range for Unit Price Delayed Reordering Economic Order Quantity (EOQ)

Holding Cost Factors Storage Cost Loss or Pilferage Investment Opportunity or Discount Rate Obsolescence Rate Disposal Cost (End of Life Application Only)

Procurement Demand Rate Procurement Demand Rate Does Not Include Demands for Repair Repair Costs Less Than Replenishment Buys Causing Repairs to be Pursued Before Purchasing Items Good Model Output Will Depend on Good Input Procurement Demands Demand Rate associated with Throwaway Items Certain Unserviceable Repairable Item Demands: Item Not Returned by User or Field for Higher Level Repair Item Washed Out Because Repair is Not Economical If Demand Rate Data Includes Repairs, apply User Return Rate and Washout Rate Factors to Estimate Replenishment Demand Rate

Objective: EOQ is the quantity to buy with Minimum Total Cost Total Cost = Purchase Cost + Ordering Cost + Holding Cost Total Cost Unit Cost Ordering Cost Holding Cost EOQ Determining EOQ

Range 1 Range 2Range 3 Range Quantity Discount EOQs Unconstrained EOQ Constrained EOQ

Range 1 Range 2Range 3 Additionally Constrained EOQs Unconstrained EOQ Constrained EOQ A B

Handles Quantity Discounts for Recurring & Non- Recurring Demand Buys More Flexible than the Army Tool Version Handles End of Life Purchase Alternatives Within 2 Reorder Cycles Best Combinations of 1 or 2 Buys Compared Log Mod Version 4 with Help Files Covering All Inputs & Outputs Generic Tool Version

Implementing Quantity Discount Analysis Tools AR Permits Army to Determine Reqts. & Procure Quantity Discounts in lieu of EOQ At CECOM, LRC MyNSN + Contains Tool with Web Based Tie to CCSS AMSAA and TACOM Reviewed Methodology in Tool & Recommend AMC Usage Air Force, Veterans Administration & DLA in Philadelphia Distributed Generic Version Tool

Quantity Discount Source Selection Evaluation Tool Applies Quantity Discount EOQ Model Computations to Determine Likely Item Buy Quantities & Contract Purchase Costs Bidders Provide Quantity Ranges & Prices for each Potential Contract Year Improves Range Quantity Pricing Flexibility Will Likely Yield Lower Proposed Prices vs. Government Specified Quantity Ranges

Quantity Discount Source Selection Evaluation Tool Buyer Inputs Low, High and Likely Demand Rates for Items Weighting Factors for Demand Rates Contract Length Minimum and Maximum Reorder Cycles Inventory Holding Costs Simulates Buys for Items over Contract Life Automatically Selects Lowest Cost EOQ Buys Computes Weighted Average Total Cost to Buyer

Improves Acquisition & Inventory Management Decision Making Determines & Compares Lowest Total Ownership Cost Buy Provides Common Evaluation Baseline with More Accurate Source Selection Pricing Distributed & Available for Widespread Use Has Received Positive Feedback Conclusion Saves Money

Inventory Quantity Buildup INVENTORY ELEMENTSINV REQUIREMENTON ORDER QTY*ON-HAND QTY IMPACTED BY LEAD-TIME INSURANCE / RESERVE STOCK X NO SAFETY LEVEL STOCK X YES RECEIVE ORDER ADMINISTRATIVE LEAD TIME X YES PRODUCTION LEAD TIME X YES REORDER POINT RE ORDER QUANTITY ECONOMIC ORDER QUANTITY X NO REQUIREMENT OBJECTIVE UNFUNDED INSURANCE / RESERVES X NO ECONOMIC RETENTION X NO MAX RETENTION LIMIT EXCESS TO DISPOSAL * ON-ORDER QUANTITIES ARE NOT IN INVENTORY