Economic Orderquantity

Inventory Management System

ECONOMIC ORDER QUANTITY (EOQ) MODEL:

Data provided by P&G Pakistan is as follows:

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PROCTER & GAMBLE PAKISTAN (PRIVATE) LIMITED

Procter & Gamble use SAP inventory management system for all the Supply-chain purposes, provided data is approximately estimated on the basis of usage on the manufacturing plant.

Procter & Gamble Pakistan manufacture anti-bacterial soap “Safeguard” a registered trademark of the listed Company and cannot be used by any other organization.

Inventory Management Data of SOAP NOODLES (RAW Material) for Fiscal Year 2016-17

• P&G order Noodles in the form of batches, 1 Batch contains 104,000 KG. And per kg noodle cost PKR 35/-
• There two parallel packing lines in production both produce same amount of soap i.e. 1 packing line consumed 3000KG Noodles in 24 hours, so in 24 hours 6000 KG is consumed daily.
• Average annual consumption of Noodles is 1,872,000 KG, i.e. equivalent to 18 batches order per year.
• The vendor company that provides our company RM-Noodles takes 3 days approximately to deliver noodles after ordering.
• Quality takes 2 hours to release the noodles.
• Re-order point is when remaining Noodles inventory become 20000KG
• Order Cost for 1 batch of RM-Noodles (104,000 KG) is equivalent to PKR 20,250/-
• Total Annual holding cost is equivalent to PKR 364,500/-, which include all the expenses related to warehouse utilities and salaries etc. Which is equal to 20% of per kg noodles.

Thanks.

QA Department, Hub Plant

Procter & Gamble Pakistan

ANALYSIS OF DATA ON EOQ SYSTEM

 Annual demand for soap noodles (RM)

P&G order Noodles in the form of batches, 1 Batch contains 104,000 KG, and there are 18 batches order per year.

Annual demand = noodles in kg per batch * no of batches per year

Annual demand = 104,000 * 18 = 1,872,000 kg per year

Daily demand for soap noodles (RM)

P&G works 312 days in a year, and annual demand for soap noodles (RM) is 1872000 KG

Daily demand = annual demand / no of days in a year.

Daily demand = 1,872,000 / 312 =6,000 kg per day

Calculation for EOQ

DATA

 D= (Annual demand) = 1,872,000KG

S = (Ordering cost per order) = 20,250 per order

h = (Holding cost per unit) 20% of 35 = PKR 7

L = ( Lead time )=3 Days

EOQ = Sqrt (2* D * S)

                           h

EOQ = sqrt (2 * 1,872,000 * 20,250 )              

                                      7

EOQ = 104,072 Kg.

Annual ordering cost for soap noodles (RM)

Order Cost for 1 batch of RM-Noodles is equivalent to PKR 20,250/-  EOQ = 104,072Kg.