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Optimizing Inventory with Economic Reorder Quantity (EOQ) in Business Central

Jun Wang Profile Picture Jun Wang 4,804 Super User
 Optimizing Inventory with Economic Reorder Quantity (EOQ) in Business Central

In inventory management, one of the key challenges is determining the optimal order quantity that minimizes total costs, including purchasing, holding, and ordering costs. This concept is known as Economic Reorder Quantity (EOQ). Businesses using Microsoft Dynamics 365 Business Central can leverage EOQ principles to optimize their inventory management and reduce costs. In this blog, we'll explore how to set up and use EOQ in Business Central.

Set Up Item and Vendor Information:

Vendor Card: Maintain detailed information about vendor pricing and order quantities. Ensure that price breaks for different order quantities are clearly defined.

Item Card: Include relevant data such as reorder points, lead times, and safety stock levels. Define the reorder policy and set the reorder quantity based on EOQ calculations.
Reorder Policy Configuration:
Navigate to the item card in Business Central.

Under the planning section, set the Reorder Policy to Fixed Reorder Quantity.
Using Planning Worksheets:
Requisition Worksheet: Use the requisition worksheet to generate purchase order suggestions. Business Central will suggest reorder quantities based on the item card.
Item Planning: Run the item planning process to review and adjust suggested order quantities. 
Balancing Quantity and Cost:
Although Business Central does not automatically recommend the lowest total cost quantity, users can balance between quantity and price manually.

For example, if the demand is for 800 screws, but ordering 1000 screws provides a significant price break, users should consider adjusting the order quantity to benefit from the lower price.
Best Practices:
Regularly Review Vendor Agreements:

Ensure that vendor agreements are up-to-date and reflect current price breaks for different quantities.

Monitor Inventory Levels:
Use Business Central’s inventory management tools to keep track of stock levels and avoid overstocking or stockouts.

Adjust Reorder Quantities Based on Demand:
Periodically review and adjust reorder quantities to reflect changes in demand patterns and cost structures.

Implementing EOQ in Microsoft Dynamics 365 Business Central helps businesses optimize their inventory management by balancing ordering and holding costs. While Business Central provides robust tools for managing reorder quantities, it is essential to manually check for cost-effective ordering practices, especially when dealing with price breaks. By leveraging these features and best practices, businesses can achieve significant cost savings and improve their inventory efficiency.

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