The Quantity Discount Model in Inventory Management

[@BridgetNamwinga]

I had to stop the video just to give this a thumbs up. This is good. You explaination is so clear and straight to the point ❤

[@OperationsAndSupplyChain]

Hi Bridget, thanks so much for the feedback! I'm glad we could help. Feel free to check out www.OperationsUniversity.Org for more resources to help you understand the course materials! Thanks again :)

[@izzatiafiqah9941]

This video help me alot to do exercises in class, because I dont understand what was teach in the class before this. Thank you for your video!

[@OperationsAndSupplyChain]

You're very welcome Izzati! Thank you for watching our videos. I am glad it was helpful for you!

[@dericeman1125]

Very clear and structured explanation! It makes the rather theoretical university content way more understandable. It helped a lot! Thanks

[@OperationsAndSupplyChain]

Great to hear it was helpful! Thanks for the feedback and good luck in your class!

[@TahminaImanli]

I had to stop the video and comment. This was amazing explanation, so far the best one I encountered.Thanks!

[@OperationsAndSupplyChain]

Wonderful, thank you for the feedback Tahmina! I'm glad it was helpful for you. The quantity discount model can be tricky because you may purchase a quantity that is ultimately higher than the EOQ, which is counterintuitive to what we have learned in Ch12 on Inventory Management.

[@dianestendahl]

This is the best content ! Thank you for making these concepts painless . I appreciate this so much!

[@OperationsAndSupplyChain]

My pleasure! Glad you enjoyed them Diane!

[@priscillahagan9215]

I love it. I'm beginning to fall in love with Operations and Supply Chain because of you. You are a great teacher.

[@OperationsAndSupplyChain]

Wow, thank you Priscilla! I'm happy to hear you are enjoying our videos and understanding the concepts.

[@nitingirwal4115]

Thank you so much! You are a saviour ❤

[@OperationsAndSupplyChain]

Hi Nitin, you're welcome! Thanks for watching. If you need more help on the Quantity Discount Model you can find Practice Problems or Microsoft Excel Templates on our website at www.OperationsUniversity.Org

[@abhishekpadhy336]

Great sir. Your lecture was really helpful !!!

[@OperationsAndSupplyChain]

Glad to hear the lecture was helpful. Thanks for the feedback!

[@AnjaliSingh-m3w]

Thank you! Glad I found this before my exams 😅

[@OperationsAndSupplyChain]

I'm glad to hear it! That's a big reason why I post them, so I am glad they were helpful. Good luck!

[@Silahtar]

Apart from the feasible values do we calculate the total cost for the lower breakpoints if we find a value which is not feasible below that lower bound but never the upper breakpoint?

[@OperationsAndSupplyChain]

Good question. First you need to calculate the EOQ which will give you the initial feasible order quantity. After that, you would only pick the lowest quantity in each of the higher price breaks / quantity discounts. You would not go backwards trying to solve for lower price breaks below the EOQ.

[@nusratjahanjonaki6284]

it is amazing sir. thank you.

[@OperationsAndSupplyChain]

Hi Nusrat, that's very kind of you. Thank you for watching! For additional support (practice problems & excel templates) please go to www.operationsuniversity.org

[@TahminaImanli]

I have a question, at 19:29, when we calculate the Q* for the first model (quantity 1-499, price 0.9), what if it was feasible, and we had 2 feasible Q*? Which one would we pick in this case? (I assume that we calculate total price for each q*, then choose the lowest one. and calculate price break points after, but I'm not sure)

[@OperationsAndSupplyChain]

Hi Tahmina, your logic is correct. If you calculated two feasible Q's, you would use the one that resulted in the lowest total cost. Then check the larger price breaks to determine those total costs. No matter what, the correct solution is the Q with the lowest total cost.

[@marwasalih8798]

thank you , that was helpful

[@OperationsAndSupplyChain]

You're welcome! Thanks for watching our videos Marwa!

[@catarinapinto5989]

if the Q* from the first quantity (1-499) isn´t part of that interval we never correct it to like 499 or zero?

[@OperationsAndSupplyChain]

Hi Catarina, that is correct. You can't just mix/match the holding costs & price breaks.. You must find the feasible order quantity based on the holding cost & price breaks. Then after that you do the same calculation, using the lowest volume in the next price break quantity, and repeat that process until you calculate the lowest total cost. The lowest total cost will not always be the smallest quantity in the largest price break quantity, because the holding costs will also be increasing.

[@catarinapinto5989]

@@OperationsAndSupplyChain thank you so much for the video and the explanation

[@moinulhasanrony29]

Really helpful. Thank you

[@OperationsAndSupplyChain]

You're welcome!

[@gunaitarde9312]

I had a doubt, while calculating EOQ in the last problem, we eliminated the quantity of 1000 because it was not a feasible solution, then why and how did we use that quantity for calculating total costs?

[@OperationsAndSupplyChain]

Hi Gunai, good question. I get that one a lot from my students. To solve for the Quantity Discount Model it requires a few extra steps. We are trying to find the LOWEST total cost, not the EOQ. So many times you will buy MORE than the EOQ (which is a feasible solution), because you want to achieve a better price break (a lower unit cost). That higher quantity may result in the lowest TOTAL cost. For this problem specifically, the EOQ is 840 and the total cost at the $.34 each is $3,686. The next price break is at 1,000 switches ($.32 each), so when you calculate the total cost it equals $3,480 (which is less than $3,686). Always use the lowest quantity in each price break to determine the minimum order quantity and if you should buy the resulting higher quantity to achieve the lowest total cost.

[@jaydennge8992]

Thank you so much SIR !!

[@OperationsAndSupplyChain]

You are very welcome. Thanks for watching!

[@tiajarrett5978]

Quick question , In the first example, why didn't we calculate the holding cost for each like question 2 did?

[@OperationsAndSupplyChain]

In example #1 the holding cost value was given. In example #2 holding cost was given as a percentage of the purchase price, so you need to calculate the holding cost before you can begin.

[@tiajarrett5978]

@@OperationsAndSupplyChain Another question, if I am not given the annual demand ''D'' but was given the monthly or another period, how do I find the annual demand?

[@OperationsAndSupplyChain]

Yes. That is very common. At my university professors frequently give the monthly demand (lower case d). You would need to take the monthly demand X 12 = annual demand (D).

[@sohamghai6692]

really helpful!!

[@OperationsAndSupplyChain]

Great, thanks for the feedback!

[@anjalipoudel3051]

Hi, what if the demand is given as monthly demand? Do we have to convert it into annual demand?

[@OperationsAndSupplyChain]

Hi Anjali, Yes, that's one of the oldest tricks in the books. You would need to take the monthly demand (d) x 12 to get the annual demand (D) and use that for your calculation.

[@anjalipoudel3051]

@@OperationsAndSupplyChain Can’t we just use the monthly demand for our calculation? Is it a compulsion to convert monthly demand into annual demand?

[@OperationsAndSupplyChain]

No, because the total purchase cost is annual, therefore demand must also be annualized.

[@Saidanware]

best of the best sir

[@OperationsAndSupplyChain]

Thank you Naim! Glad you learned from the video!

[@Saidanware]

@@OperationsAndSupplyChain sir your channel deserve more view and reach

[@OperationsAndSupplyChain]

Ha Ha thank you! It’s getting there. I just posted these videos a couple months ago and my newest content will be published shortly. Stay tuned!

[@ivanabdulrazack837]

cab you please 😢 do EOQ with planned shortages please

[@OperationsAndSupplyChain]

Hi Ivan, I'd recommend watching my video on EOQ in Inventory Management & then my other video on How to calculate a Reorder Point (ROP). That video explains how to calculate order quantities while factoring in Safety Stock. Thanks for watching!

[@RAVIKUMAR-o1x8x]

Beutifuly explained

[@OperationsAndSupplyChain]

Great, I am glad the video was helpful for you. Thanks for the feedback!

[@bakrymohamed5876]

thank you for every thing it is effort beautiful , please i need to a pdf

[@OperationsAndSupplyChain]

Thanks for watching and thank you for the feedback! PDF’s for every single topic can be found for free at www.OperationsUniversity.Org