In cross-border e-commerce operations, the problem of replenishment is often encountered. Some products are selling well and need to be restocked. If too much is ordered, the inventory cost will be high, and the products may be unsalable and have a long turnover time; if too little is ordered, there may be a shortage of stock, resulting in shortage costs. In order to improve the profit margin, the sum of ordering cost and storage cost must be minimized. Therefore, the order quantity is called the economic order quantity (EOQ).
(I) The following assumptions must be met when the economic order quantity method is used
(1) The company can replenish inventory in a timely manner, that is, the inventory can be obtained immediately when the order is needed.
(2) The goods arrive in batches, rather than one after another. (3) No shortage is allowed, that is, the shortage cost is zero.
(4) The demand is stable and predictable, and the price of the goods remains unchanged by default.
(5) The company has sufficient cash and will not be affected by capital shortages. The supplier has sufficient supply.
(II) Calculation formula
(1) Economic order quantity calculation formula:
(2) Optimal annual order frequency calculation formula:
(3) Total inventory cost calculation formula:
TC=√2DSC
(4) Optimal order cycle calculation formula:
-36 days
(5) Economic order quantity capital calculation formula:
1=2×0
In the above formulas: 0* is the economic order quantity;
D is the annual demand for the product; S is the cost of each order; C is the annual storage fee;
N* is the optimal annual order frequency; t* is the optimal annual order cycle; I* is the economic order quantity; U is the unit price of the product.
Because the market demand in cross-border e-commerce operations is changeable, it should be noted that the economic order quantity is only used as a reference for analyzing cross-border e-commerce procurement data, and cannot be used directly as the procurement quantity. The specific purchase quantity needs to be considered comprehensively in combination with factors such as changes in market demand, procurement costs, and product life cycle.
[Data Reading] Application of Economic Order Quantity Method
Xiao Wang sells 3C products on Amazon’s US site, and one of his headphones has been selling very well all year round. Based on last year’s sales data, Xiao Wang purchased 8,000 pieces at a unit price of 10 yuan, and the cost of each order was 30 yuan. The unit inventory maintenance fee was calculated at 12% of the value of the inventory. If the lead time for each order is two weeks, try to find the economic order quantity, the best annual order number, the best order cycle for total inventory cost, and the capital occupied by the economic order quantity.
Solution: It is known that the unit price U of the product is 10 yuan/piece, the annual demand D of the product is 8,000 pieces/year, the unit ordering fee, that is, the cost of each order S is 30 yuan/time, and the annual storage fee C consists of two parts: one is the interest on funds, and the other is the storage fee. That is, C-10×12%+10×18%=10×30%-3 yuan/(piece·year), and the order lead time LT is 2 weeks.
Then the economic order quantity:
2DS2x8 000×30=(400) piecesQ*=√cThe best annual order number:
N000400=20(times)
Total inventory cost:
TC(Q)=√2DSC=√2×8 000x30x3=1200(yuan)The best order cycle:
Capital occupied by economic order quantity: –18(days
1*=02xU-1420×10-2000(yuan)