Working capital management 运营资本管理

1. EOQ aims to minimize the costs which are relevant to ordering and holding inventory.

- Total holding cost=EOQ/2*Ch

- Total ordering cost=Co*D/EOQ

- Assumptions for EOQ

•Demand and lead time are constant and known

•Purchase price is constant

•No buffer inventory held (not needed)

-Total cost=Ordering cost+ Holding cost+ Purchase cost (if have quantity discount, ie., purchase is not constant)

2. Reorder level

Reorder level=Demand in the lead time

Reorder level discuss when to order.

3. Reasons for holding cash

•Transactions motive

Cash required to meet day to day expenses.

•Precautionary motive

Cash held to give a cushion against unplanned expenditure.

•Speculative motive

Cash kept available to take advantage of market investment opportunities.