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Economic production order quantity (POQ) | Free template

Economic production order quantity (POQ) is a free template to determine the optimal production volume of each production order for goods with independent demand.

Independent demand means that the demand for one product not is dependent on the demand for other products, which is to say that there is no connection between the products. With dependent demand means that the demand for a product depends on the demand for other products, which is to say that a product is incorporated into one or more other products.

The model of economic production order quantity takes unlike the model of economic order quantity account to that inventory is built up over a period of time. The model of economic order quantity assumes that materials or goods are shipped in bulk at one time. The model of economic production order quantity can be used when there is a continuous flow of inventory, when the stock is built up over time or if units are produced and sold at the same time. The model of economic production order quantity takes account for the daily production rate and the daily demand.

The model for calculating the optimal production order quantity is based on the following assumptions:
1. Expected demand has been forecasted and demand is independent
2. The production rate per day is known
3. The only variable costs of production and storage are the setup cost and holding cost
4. It is possible to avoid stock outs if the production begins at the right time

In order to calculate the economic production order quantity you need to have data on the total demand for a product in volume over a year, the variable setup cost for each production order, the production rate per day, the purchase price of the product and holding costs as a percentage of the purchase price. The setup cost is the cost to prepare a machine for the series and can be composed of personnel, depreciation of tools and consumables. Holding cost is the cost of holding goods in inventory like the costs of storage, interest on capital, insurance and obsolescence.

The objective of the model of economic production order quantity is to minimize the total cost of setup and storage. The optimal production quantity is the quantity where the total setup cost and holding cost is the lowest.

You can use this template to calculate the optimal output for a production order. You can get information on the total cost, number of setups per year, maximum stock levels and the average inventory level. In this model calculations are made for a product and if you want to do calculations on multiple products simultaneously, an inventory software or inventory systems would be recommended.
Updated: 01-01-2015 | Created by All-templates.biz

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