I'm trying to get a more accurate EOQ model for maintaining our inventory. I'm using the commmonly accepted sqrt (2*YearlyDemand*CostPerOrder/HoldingCost) formula.
Everything is working except for the CostPerOrder value because our cost per order is not linear. This is mainly caused by our overseas vendors. Say i bring in 50 of one item in a parcel: the parcel cost may only be $75. If freight were linear, it would cost me $9000 to bring over 6000 items. But, i can stuff 6000 items in a sea freight container at a cost of $4000 freight (flat rate).
the formula, as i understand it, works with the total cost per order in order to derive the EOQ. but, with a cost delta between two order methods of $5000 the formula is useless.
any inventory gurus floating around out there who know how to tackle this issue?