Variability in Economic Order Quantity

In this exercise the order quantity, q for the next time period is to be specified. The starting point for estimating q is historical data for demand, R, unit cost, P, ordering cost, C, and holding cost, i. Since values for these variables are known, the economic order quantity, Q, can be calculated at the end of the current time period. This data is shown after a click on Reset.

The trends in R, P, C and i are fixed and a variation around the trend in demand can be specified for the exercise. Variability in demand can be set to 5%, 10% or 15%. That is, the variability in demand for the next time period will be a random variation between +5% and -5%, between +10% and -10% or between +15% and -15% around the demand trend.

The order quantity for the next time period is to be specified as a percent change from the economic order quantity, Q, for the current time period, taking into account the trends in costs and demand and the variability in demand.

For each time period increment, the actual demand (including variability), the economic order quantity and specified order quantity are shown. The difference between the economic order quantity and the specified order quantity is called "Delta." Delta for each time period, the cumulative value over time and the average value of Delta is displayed.

Run the exercise five times for each demand variability value. Plot average Delta for the five runs against the demand variability value.

In reality there will be uncertainties in the costs also and so predictions will become more difficult.