Any business-type people out there able to help me out a bit?

[mugs]

My boss asked me to develop an economic order quantity model for our company, and I'm having some issues due to the complexity of the situation. If you're willing and able to help, please PM me as I'd rather not give too many details in this thread.

 

[mugs]

Anyone?

 

[DannyBoy]

What does the company deal with?

 

[mugs]

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[gsaldivar]

Did your boss really ask you to create an EOQ model, or did you suggest creating one having recently studied it in class?

Understanding the basic EOQ model isn't difficult, but the devil is in the details. Most textbook models omit real-world variables such as quantity discounts, variable demand, and replenishment rates. Creating a real-world model for this type of inventory activity is easily an MBA or Ph.D. level question.

That being said, why not first contact your suppliers and try to negotiate the shipping charges? One way to do this is if you are using two suppliers for a particular product, you can agree to send all or most of your business to either supplier in return for discounted or free shipping. A different way is to agree on a fixed pricing schedule (i.e. 10% off retail, 10% over cost) which includes the shipping fee in the cost of the product.

Since, as you said, you are a small company and can't afford the risk of holding a warehouse of unsellable inventory; I suggest that your goal should be many small shipments of materials as they are needed, rather than fewer large shipments of materials before they are needed.

Hope this helps!

 

[gotsmack]

thats a supply chain question. hire a consultant. anyone who would do a complx problem like that for free either needs the experience or has nothing better to do.


and heres an obvious answer thats a quick fix if you can pull it off. Figure out a way to move more product.

 

[mugs]

Originally posted by: gsaldivar
Did your boss really ask you to create an EOQ model, or did you suggest creating one having recently studied it in class?

Heck no, my degree is in computer science and I graduated last year. My boss has an MBA, it was his idea.

Understanding the basic EOQ model isn't difficult, but the devil is in the details. Most textbook models omit real-world variables such as quantity discounts, variable demand, and replenishment rates. Creating a real-world model for this type of inventory activity is easily an MBA or Ph.D. level question.

That being said, why not first contact your suppliers and try to negotiate the shipping charges? One way to do this is if you are using two suppliers for a particular product, you can agree to send all or most of your business to either supplier in return for discounted or free shipping. A different way is to agree on a fixed pricing schedule (i.e. 10% off retail, 10% over cost) which includes the shipping fee in the cost of the product.

Our business similar to a franchise, we have one supplier for this product line. I don't know about the feasibility of adding another supplier, but I think I can assume it's out of the question.

Since, as you said, you are a small company and can't afford the risk of holding a warehouse of unsellable inventory; I suggest that your goal should be many small shipments of materials as they are needed, rather than fewer large shipments of materials before they are needed.

Hope this helps!

Based on your and gotsmack's responses, I think I'm going to use a more simplified approach - if we'll sell a full pallet worth of material in x months, order in full pallet increments; otherwise, order whatever we expect to need for the period we're forcasting. At least with the demand forcasting in place, I'll be able to place regular stocking orders and not have to deal with out of stock situations that force us to place small orders.

 

[gsaldivar]

Our business similar to a franchise, we have one supplier for this product line. I don't know about the feasibility of adding another supplier, but I think I can assume it's out of the question.

I was suggesting minimizing the number of suppliers, not increasing them. Fewer suppliers = better.

My point was if your supplier knows that they are your sole source, they might be inclined to offer you some concessions/discounts on shipping fees. While it is best to "reward" suppliers offering you these types of discounts with 100% of your business, in your case you already do this, so your negotiating position is weak in this respect. Alternatively, you can get price quotes from other suppliers, compare costs and during negotiation use these comparisons to indicate that your company is considering taking its business elsewhere. Either approach - the "carrot" or the "stick", can get you the desired result if used properly.

If your business is similar enough to a franchise that your supplier is the only POSSIBLE source of your product (i.e. your product line is licensed, proprietary, etc.), then you are probably wasting time asking for any concessions on priice/shipping. Best to approach as you did initially, and focus on cost reductions through minimizing shipping and warehousing fees through sales forecasting.

I'm going to use a more simplified approach - if we'll sell a full pallet worth of material in x months, order in full pallet increments; otherwise, order whatever we expect to need for the period we're forcasting. At least with the demand forcasting in place, I'll be able to place regular stocking orders and not have to deal with out of stock situations that force us to place small orders.

Sounds like a good idea. Have you started by comparing sales from the same period in previous years? This is usually very helpful in forecasting demand...

 

[mugs]

Originally posted by: gsaldivar

Our business similar to a franchise, we have one supplier for this product line. I don't know about the feasibility of adding another supplier, but I think I can assume it's out of the question.

I was suggesting minimizing the number of suppliers, not increasing them. Fewer suppliers = better.

My point was if your supplier knows that they are your sole source, they might be inclined to offer you some concessions/discounts on shipping fees. While it is best to "reward" suppliers offering you these types of discounts with 100% of your business, in your case you already do this, so your negotiating position is weak in this respect. Alternatively, you can get price quotes from other suppliers, compare costs and during negotiation use these comparisons to indicate that your company is considering taking its business elsewhere. Either approach - the "carrot" or the "stick", can get you the desired result if used properly.

If your business is similar enough to a franchise that your supplier is the only POSSIBLE source of your product (i.e. your product line is licensed, proprietary, etc.), then you are probably wasting time asking for any concessions on priice/shipping. Best to approach as you did initially, and focus on cost reductions through minimizing shipping and warehousing fees through sales forecasting.

Oh whoops, I didn't read too carefully. I was thinking along the lines of needing another supplier for leverage to negotiate a better price, as you obviously picked up on. Our supplier's rates are very reasonable, they are just disadvantageous to us right now because we're not moving enough product (we're working on that).