Order Frequency Comparator
Compare two order-frequency options on total annual cost, ordering cost plus holding cost together, not ordering cost alone.
Option A
Option B
$7,435.95/year cheaper than the other option, 52.1 vs 6.1 orders/year.
Resources
How this works
Ordering less often always looks cheaper on the ordering-cost line, fewer orders means fewer order-placement fees. But a longer gap between orders also means a bigger order quantity each time, which raises average on-hand inventory and its holding cost. This engine prices both options on total annual cost, ordering cost plus cycle-stock holding cost plus safety-stock holding cost, and picks whichever is actually lower once both are counted together.
Key terms
- Cycle stock: the inventory that rises to a full order quantity at delivery and falls to zero just before the next order, averaging half the order quantity over time.
- Holding cost rate: the fraction of a unit's cost it takes to store that unit for a year, covering capital, space, insurance, and shrinkage.
- Safety stock: buffer inventory held constantly regardless of order frequency, so it adds the same holding charge to every option being compared.
Assumptions
- One uniform demand rate and one uniform holding cost rate across both options
- Safety stock is unaffected by which order-frequency option is chosen
Limitations
- Two named options only, not an open-ended economic-order-quantity search
- Does not model supplier quantity discounts or minimum-order constraints
Sources
Standard inventory-cost decomposition into ordering cost and holding cost (Silver, Pyke, and Peterson, Inventory Management and Production Planning and Scheduling).
Worked example
At 12,000 units/year demand, $75 to place an order, and a 25% holding cost rate on a $50 unit, ordering every 7 days (Option A) costs $3,910.71/year to place orders, far more than ordering every 60 days (Option B) at $456.25/year. An ordering-cost-only comparison picks B. But B's 60-day cadence means a much larger order quantity each time, its holding cost runs $12,328.77/year against A's $1,438.36. Once both are counted, A actually wins, $7,849.07/year total against B's $15,285.02, the opposite of what the ordering-cost line alone suggested.
Common use cases
- Choosing between two candidate reorder cadences for the same item
- Checking whether consolidating orders into fewer, larger batches is actually cheaper
- Continuing from Service Level Cost Tradeoff's safety stock into a reorder-cadence decision
Frequently asked
- Why isn't consolidating into fewer, larger orders automatically cheaper?
- Fewer orders reduce per-order ordering cost but increase average inventory on hand, and therefore holding cost; the cheaper option depends on which effect is larger for your specific numbers.
- What is included in holding cost here?
- Holding cost is applied as a rate against the value of inventory carried, capital, storage, and risk together, entered as your own holding-cost-rate input rather than assumed.
- Does this account for volume discounts on larger orders?
- Not directly; if a larger order size also qualifies for a unit-price discount, that savings should be factored in separately alongside this ordering-versus-holding comparison.
- How many order-frequency options can this compare?
- This compares exactly two named options head to head; a third candidate frequency needs its own run against whichever option won the first comparison.