R for Industrial Engineers

Economic Production Quantity with R

Exploring the “SCperf” R package

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Economic Production Quantity

Economic Production Quantity (EPQ) is an inventory planning and managing measurement used in Operations, Supply Chain, and Logistics departments within business and organizations. It represents the optimum quantity of an item to be produced per production run to minimize the combined production and holding costs. It helps to determine the frequency of production runs to satisfy a given annual demand.

Variables

• Q: optimal production quantity
• D: annual quantity demanded
• P: production rate
• K: cost of production run (fixed cost)
• H: holding cost per unit (variable cost)
• i: carrying cost (interest rate)
• C: unit cost (variable cost)

Assumptions

• The demand rate is constant and evenly spread throughout the year
• The total annual demand is known in advance (i.e. deterministic)
• The production rate is greater than or equal to the demand rate
• The set-up time is…