How do you optimize EOQ and reorder point models with multiple suppliers and lead times?

An EOQ means by economical order quantity. The order qty is so balanced in this way that all the perspectives of order management like inventory carrying cost , interest associated with it , logistics cost , order placement cost etc are well balanced . At the last I would say it should be decided very carefully by taking the lead time and production cycle into consideration.

we can effectively optimize EOQ and reorder optimal with multiple suppliers and lead times, leading to more efficient inventory management, lower costs, and improved service levels. by maintaining flexibility and adaptability in your approach is key to handling variations in demand and supply conditions.

The premise behind this article seems to me to be a non-issue: How to source EOQ when dual or multisourcing a single item. Multi-sourcing is usually used for high volume supplies, where EOQ is less relevant than optimal supply logistics - i.e. full pallet/truckload... the pacing of shipments. These are often NOOSE (never out of stock ever) items. Nonetheless, when using EOQ, make sure you have the right definitions and costs. Lead time is from time replenishment requirement is known to when it is available to be used (include review cycles, time to supplier receipt, time from delivery to available to issue. Inventory carrying costs & ordering costs must likewise be properly defined & costed. They can vary significantly, effect the outcome.

EOQ and Reorder point both are different perspectives. EOQ is the quantity which gives you benefit in cost like ordering cost, margin. You need to select supplier accordingly who can adjust to demands and there is no room for unforeseen circumstances. You need to develop suppliers but number of supplier shouldn’t increase to dozens for a single item sourcing. It proves to be costly as different suppliers have different views regarding cost. Two main supplier and two contingency supplier who can handle the sudden demand up to 20% from normal load and subsequently distribute between them. As long as we keep ordering in control, we will keep cost associated with them under consideration. Make product list for inventory and JIT.

EOQ (Economic Order Quantity) EOQ is a mathematical model that determines the optimal order quantity that minimizes total inventory costs, including ordering costs and holding costs. Ordering costs are fixed costs incurred each time an order is placed, such as processing costs, transportation costs, and inspection costs. Holding costs are variable costs associated with storing inventory, including storage space, insurance, and capital opportunity costs. The reorder point is the inventory level that triggers an order placement to replenish stock before it runs out. It is calculated by considering the lead time (the time it takes to receive an order from a supplier) and the safety stock.

Managing between suppliers does require a balance and support for the end to end business needs vs costs. However quick example if you are a large manufacture supporting X suppliers that are diversified for your business and have many other variables for support on product requirements suggest an over view of managing through one strategic supplier vs control consolidated logistics for generally all products vs TCO segmentation. Key is finding the balance,partners and logistic strategy for all end to end optimization

.1- Identify the supplier's direct (purchase price, transportation costs, and customs duties), indirect (inventory holding costs, training costs, and maintenance costs), and Lifecycle costs such as disposal costs and warranty costs. 2- Evaluate intangibles such as the quality of the supplier's products or services 2- Calculate the total cost of ownership by summing all of the relevant costs, both tangible and intangible. - Compare the supplier's total cost of ownership to identify the most cost-effective option. - Consider additional factors that may be important to your organization, such as the supplier's environmental sustainability practices, social responsibility initiatives, and customer service reputation.

Identify Cost Components: Break down the total cost into various components, including: Unit price: The price per unit of the product. Ordering costs: Costs associated with ordering, such as administrative costs, paperwork, and communication expenses. Holding costs: Costs associated with holding inventory, including storage, insurance, and obsolescence. Transportation costs: Costs associated with shipping the product from the supplier to your location. Quality costs: Costs associated with defects, rework, and returns. Lead time costs: Costs associated with longer lead times, such as stockouts, expedited shipping, or lost sales. Other costs: Any additional costs specific to your industry or situation.

Key is to understand your long lead times with suppliers to reduce and minimize if possible. Ideally they may have some raw materials impacting lead times and leverage this as phase 1 to review and reduce to manage forward. Involve engineering and supplier to help reduce lead times and/or buffer at the factory vs taking on more inventory and stock, carrycost, etc before managing through consolidating added inventory

Calculate Safety Stock: Safety stock is inventory held to mitigate the risk of stockouts due to variability in lead time or demand. The higher the variability in lead time, the higher the safety stock needed.

The standard EOQ formula assumes a constant lead time, but in reality, lead times can fluctuate due to factors like supplier performance, transportation delays, or unexpected events. To adjust EOQ for different lead times, consider the average lead time and the lead time variability. One approach to adjusting EOQ is to use a weighted average lead time. This involves assigning weights to different lead time scenarios based on their likelihood of occurrence. Another approach is to use a safety lead time, which is an additional buffer added to the average lead time to account for lead time variability. The safety lead time should be based on the level of risk the organization is willing to accept regarding stockouts.

This depends on the product and manufacturing that meets business needs. Commodities are simple however diversification and shifting between suppliers is sensative to the product you are producing - strategic partners are dynamic if your core deliverables are essential

Based on suppliers capacity and geographical location you can build out quota arrangements. They often used to level load between multiple options. Some materials are easier to manage compared to others. Depending on Commodity Risk profile and Supplier capacity the allocation can be made.

I would like shareSome tips - Having accurate inventory data. -Having ERP system. - classifieds our inventory as strategic, consumer, fixed assets. - requested items as consumption items to avoid accumulated stock. - setting annual budget and following it every month. -determined the EOQ as considering the POs, pos pipeline and PRs minus having stock and comparing it with the consumption.

Optimize EOQ & reorder points with multiple suppliers: 1. Evaluate Supplier Performance: Assess reliability, quality, lead times, pricing. 2. Calculate EOQ for Each Supplier: Consider pricing, lead times. 3. Determine Reorder Points: Based on lead times, demand variability. 4. Allocate Orders Wisely: Split orders to leverage strengths. 5. Implement Inventory Management: Track levels, monitor suppliers. 6. Continuous Monitoring: Adjust based on inventory, supplier performance.

- Total cost of ownership (TCO) - Assess the historical performance of each supplier, - Consider the production capacity and lead times of each supplier. - Distribute orders across suppliers located in different regions or countries to mitigate the risk of disruptions caused by geographic events or supplier-specific issues. - Consider building strategic partnerships with key suppliers to leverage their expertise, technological advancements, and volume discounts. - Divide a large order into smaller quantities and distribute them among multiple suppliers. - Utilize negotiation techniques to secure favorable terms with suppliers, including lower prices, extended payment terms, and value-added services.

Inventory optimization is key and leverage end to end. If you align partners vs suppliers you gain more financial and business worth for them to work with you and for you

- Establish Key Metrics such as inventory turnover ratio, days sales outstanding (DSO), inventory carrying costs, and stockout rate. - Track Inventory Levels and identify any discrepancies or potential stockouts. - Analyze Demand Trends to forecast future demand accurately. - Monitor Supplier Performance such as on-time delivery rates, quality control, and customer service responsiveness. - Conduct Inventory Audits to ensure the accuracy of your inventory records and identify any discrepancies or shrinkage. - Analyze Inventory Costs including holding costs, ordering costs, and stockout costs, optimize order quantities, reorder points, and safety stock levels to minimize overall inventory costs.

Utilize Inventory Management Systems: Implement inventory management software or systems that provide real-time visibility into your inventory levels, demand patterns, lead times, and other relevant data. These systems can automate many tasks and provide valuable insights for decision-making. Set Key Performance Indicators (KPIs): Define KPIs that align with your inventory management goals, such as inventory turnover ratio, fill rate, stockout rate, and carrying cost of inventory. Regularly track these KPIs to assess the performance of your inventory management practices.

Benefits of Optimization: Reduced Inventory Costs: Lower holding and ordering costs through more accurate EOQ and reorder point settings. Improved Stock Availability: Ensure products are available when needed, reducing stockouts and backorders. Enhanced Supplier Relationships: Optimize order volumes and frequencies, leading to better supplier negotiations and terms. Increased Efficiency: Streamline inventory processes, reducing manual adjustments and improving decision-making accuracy.