EOQ Holding Cost Evaluation.

The primary purpose of the holding cost study was to build a reference chart of the effect on purchases and support statistics for use when the holding cost changed. The relationship between holding cost and ordering cost in the EOQ formula allows this chart to also be utilized when the ordering cost changes. A secondary result of the study was charts showing the relationship between holding cost, shortage cost and buy dollars or backorders or fill rates. EOQ holding cost varies from ALC to ALC. Each year these holding costs are updated and can change. As they change questions arise as to what will happen to buy dollars, fill rates, backorders and number of purchases. This study simulated samples of items through a period of time using several holding costs. Comparison of the resultant buy dollars, fill rates, backorders and number of purchases showed the effect of changing the holding cost. The magnitude of the effect varied depending on the initial holding cost. The tables included show this effect of changing the holding cost through a wide range of feasible holding costs. (Author)