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Dear tutor,
I’m confused about EOQ with buffer inventory.
As per this part of question’s statement,buffer inventory equal
to 40% of one month’s sales is maintained under the current situation.however,there is no wording about whether this buffer inventory should be maintained under EOQ policy.Therefore,I included the holding cost of buffer inventory in the total cost under the current ordering policy,but i ignored the holding cost of buffer inventory under the EOQ policy.
am i right?im not certain how to explain this and Mr.Mofat may come and correct mi …
buffer inventory is the min inventory a company should keep in case of emergencies,delay inefficiencies from suppliers,
default inventory…ect..so looking at it in a logic point of view you should always have the (buffer) amount because of the
uncertainties ive mentioned above…
so it does matter which method u choose to order..be it EOQ or the current policy, buffer should always be included
because u need it.
i think holding cost using eoq should involve buffer…i did include it for the exam, formula i used was
Ch * (EOQ/2 + BUFFER)You are both right.
The buffer stock is ignored when calculating the EOQ (because the buffer stock will be the same regardless of how many we order each time).
However, later when calculating the total cost of holding inventory, the buffer stock is included because there is a cost of holding it.
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