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The | 
 is the number of days from cash to inventory to accounts
receivable to cash.

The | 
 reveals how long cash is tied up in receivables and inventory.

A long | 
 means that less cash is available to meet short term

Operating Cycle = age of inventory + collection period.

Economic Order Quantity (EOQ)

The basic is a mathematical method for determining the order or production quantity, given the
total demand during a period of time is known. The formula tries to find an optimal balance
between the carrying (holding) costs and ordering costs in order to minimize the total cost. EOQ
is an effective tool for inventory optimization, especially if the demand projections, carrying and
ordering costs are correctly evaluated.

Beside this basic EOQ model we also present EOQ models with non instantaneous receipt and
shortages. The model with non instantaneous receipt is meant for occasions when a company
fills and uses the inventory constantly and simultaneously. The model with shortages takes into
account the possibility of temporary stock-outs.

A graph below illustrates the relationship among the ordering costs curve, the holding costs
curve, the total costs curve and the EOQ (source: Wikipedia).

Basic model

With the amounts given, the ideal batch size is 17662.0 ,

and the total cost roughly 540456.0 .