How EOQ Is Calculated in Oracle Replenishment Planning

The economic order quantity (EOQ) is the optimal quantity that should be ordered so that inventory holding and ordering costs are minimized.

In a replenishment plan, you can use the reorder point (ROP) and EOQ policy type to calculate replenishments on the basis of the EOQ.

Settings That Affect EOQ

The following settings affect the EOQ calculation:

Whether information is present for an item-location combination in the Items table
Whether segment-level defaults have been defined in the policy assignment set for the replenishment plan

How EOQ Is Calculated

The following formula provides the EOQ:

Formula for EOQ in Replenishment Planning

Equation Variable	Description
C	Fixed cost per order defined at the item-location level The value of C is read as follows: If the value is present for the item-location combination in the Order Cost column of the Items table, it's used for calculating the EOQ. If the value isn't present for the item-location combination in the Order Cost column, the default ordering cost defined for the segment in the policy assignment set is used for calculating the EOQ. If the value isn't present for the item-location combination in the Order Cost column, and the default EOQ is specified in the policy assignment set, the default EOQ is used.
H	Annual carrying cost per item-location combination, which is provided by this calculation: Carrying Cost Percentage * Standard Cost The value of H is read as follows: If the carrying cost percentage isn't present for the item-location combination in the Annual Carrying Cost Percentage column of the Items table, the default carrying cost percentage defined for the segment in the policy assignment set is used for calculating the EOQ. If the standard cost isn't present for the item-location combination in the Standard Cost column of the Items table, the default standard cost defined for the segment in the policy assignment set is used for calculating the EOQ. If the values aren't present for the item-location combination, and the default EOQ is specified in the policy assignment set, the default EOQ is used.
D	Annual demand for the item-location combination, which is provided by this calculation: Average Daily Demand * Total Number of Working Days in a Year

Equation Variable

Description

Fixed cost per order defined at the item-location level

The value of C is read as follows:

If the value is present for the item-location combination in the Order Cost column of the Items table, it's used for calculating the EOQ.
If the value isn't present for the item-location combination in the Order Cost column, the default ordering cost defined for the segment in the policy assignment set is used for calculating the EOQ.
If the value isn't present for the item-location combination in the Order Cost column, and the default EOQ is specified in the policy assignment set, the default EOQ is used.

Annual carrying cost per item-location combination, which is provided by this calculation: Carrying Cost Percentage * Standard Cost

The value of H is read as follows:

If the carrying cost percentage isn't present for the item-location combination in the Annual Carrying Cost Percentage column of the Items table, the default carrying cost percentage defined for the segment in the policy assignment set is used for calculating the EOQ.
If the standard cost isn't present for the item-location combination in the Standard Cost column of the Items table, the default standard cost defined for the segment in the policy assignment set is used for calculating the EOQ.
If the values aren't present for the item-location combination, and the default EOQ is specified in the policy assignment set, the default EOQ is used.

Annual demand for the item-location combination, which is provided by this calculation: Average Daily Demand * Total Number of Working Days in a Year