Summary
The EOQ Settings Groups page is where you configure the settings that you want used for each of the groups of items determined by your EOQ Settings.
It is accessible by clicking Admin --> System Configuration --> EOQ Groups
EOQ Setting Groups Grid
The grid at the top of the screen will show all of the possible settings groups for the class settings you have configured. If you have checked none of the "Calculate EOQ's By..." boxes in the EOQ Settings page, then there will be only one entry - your default settings. The default settings will always exist, and will always have a checked checkbox in the "Settings Exist" column.
If, for example, you have selected to EOQ "By Site",then you will see one row for each site that you have, as well as the "default settings" mentioned above. You can, optionally, click on each of these settings rows to create unique settings for any site for which you want to have unique classing settings. Any groups for which you do not create an override will have the "Settings Exist?" checkbox cleared, and those groups will fall back on the default settings.
Percent Holding Cost Calculation
The first section of this screen surrounds calculating holding cost. There are two methods available, a "Simple" and "Worksheet"
Simple
This allows you to shortcut the process and simply type in the percent holding cost that you know, or estimate, for your organization.
Worksheet
The worksheet provides a more in-depth sheet to help calculate your total annual holding costs.
Annual Cost of Space - your cost of warehousing, e.g. rent, leases, etc.
Annual Cost of Computer Stock Keeping - Cost of your various computer systems tied to managing stock, e.g. WMS, hardware and software resources, cloud hosting fees, and some portion IT salaries for maintaining this infrastructure.
Annual Inventory Taxes - Taxes paid on your inventory, across all sites
Annual Inventory Insurance - Annual cost of premiums for insuring your inventory
Annual Shrinkage & Obsolescence - Costs due to writeoffs, expiration, theft, obsolete inventory (Happy New Year 2000 glasses anyone?) etc.
Annual Labor and Equipment Cost - Annual cost of warehouse labor, forklifts, barcoding equipment, printers, conveyor belts, etc. This includes all of your operating expenses (including receiving and putaway), which most organizations have a pretty good handle on.
Receiving & Putaway % of Labor Cost - This factor splits the total annual labor cost into the percentage of time managing the inventory from the amount of time receiving and putting away, which is more related to the cost of ordering rather than the cost of holding the inventory. Your annual cost is reduced by this percentage to calculate the amount of annual labor and equipment cost attributable to holding inventory, not receiving and putting it away.
NOTE: Your annual labor and equipment cost above, multiplied by this percentage, should be about the same number that you enter for your Annual Receiving Costs below, under the "Ordering And Receiving Costs" portion of the worksheet. For most organizations, this is an estimated ratio, but being relatively close is sufficient.
For example, if your organization has $1,000,000 as your annual labor and equipment cost, and 25% as the Receiving and Putaway % of labor cost, $1,000,000 * 25% = $250,000 should be the number in the Annual Receiving Costs field under the “Ordering and Receiving Costs” header.
Average Inventory Balance - Your average dollars on hand for this settings group.
Cost of Money - The interest rate on the inventory held. Together with your average inventory balance, this calculates the real cost of holding a balance of inventory in the annual interest paid on that inventory.
NOTE: Annual Holding Cost Percent in the 15-25% range are relatively common. If you find yourself outside of that range, you may want to reconsider or double-check some of the numbers that went in to your calculation.
Ordering And Receiving Costs
These factors are a worksheet which attempt to help you arrive at what is known as the Incremental Cost of Ordering, e.g, what is your cost for each new order line placed? All these costs below are summed together equally to get an idea of your annual cost of place orders, and then divided by the # of lines placed per year, to get a simple cost-per-line of ordering.
This provides the counteracting factor to your holding cost when calculating the Economic Order Quantity.
- Annual Receiving Costs - Costs due to receiving. If you've used the worksheet portion of the screen, you can calculate this by doing:
Annual Receiving Costs =
Annual Labor & Equipment Cost * Receiving & Putaway Percentage of Labor Cost
- Annual Purchasing Department Cost - Costs for the purchasing department, such as salaries for the forecasters and planners, their computers, and software licenses, including *gasp* StockIQ!
- Other Ordering Costs - A catch-all bucket for other costs you incur as part of running a purchasing or manufacturing organization. This may include things like 3PL fees or other misc expenses.
- Order Lines Per Year - How many order lines per year are you cutting? (not orders, but LINES)
From these, StockIQ will calculate your per-line cost of ordering, as well as a per-line cost of ordering ignoring the receiving costs. This is done since StockIQ has the ability to calculate individual receiving costs for items if you have per-item or per-multiple receiving cost data to load in the ItemSiteSupplier feed.
In the next section, you will fill out how these values would change if your ordering volume were to double:
- Annual Receiving Costs @ 2x Volume - Will your receiving costs double, or only some percentage more?
- Annual Purchasing Dept Cost @ 2x Volume - Similarly, how would these costs increase?
- Other Ordering Costs @ 2x Volume - Same as above.
With these factors in place, StockIQ will be able to calculate your Incremental Cost of Ordering, which will feed in to your EOQ Calculation.
EOQ Limits
Even with these factors in place, it is very often the case that we must put some sensible limits on the calculated EOQ value to ensure that the resulting number makes sense in the real world.
You can therefore set a minimum number of days-of-supply for your EOQ as well as a maximum - 5 as a min and 90 as a max are reasonable starting points, and are the system defaults.
Finally, if some items have a missing or zero StandardCost in the ItemSite data feed, it isn't possible to calculate an EOQ. So, as a fallback, StockIQ can assign an EOQ value that is equivalent to either the EOQ Min or max days, or simply zero (no EOQ), as desired.