EOQ
Fitness Centre
The fitness industry is increasingly becoming competitive due to the unprecedented number of health-conscious people that are aiming to embrace healthy lifestyles. Since the onset of the Covid-19 pandemic, many nations’ economies have been affected negatively, leaving businesses closed due to lack of profitability. Apparently, starting a fitness enterprise with this economic crash is an ideal choice for me now and in the future, since it will be able to serve a large number of people looking to engage in healthy lifestyles. Fitness is part of daily routine that can be incorporated easily into full-time workers’ schedules, hence anticipating great development potentials.
To successfully run such a business, the Economic Order Quantity needs to be given critical considerations. With EOQ, I will be able to ease inventory and maintain the inventory costs to the lowest level possible. This concept presumes that demand is persistent while inventory is exhausted at a foreseeable rate (Sebatjane & Adetunji, 2019). The EOQ will enable me to avoid paying more taxes, insurance, and security by avoiding excessive stock inventories at my station. I will only have the needed amount of equipment that will serve clients accordingly and be able to satisfy them, hence operating with a budget that I can manage.
Also, utilizing the EOQ will facilitate easy restocking. In this industry, there are a lot of vendors who often promote their products in an enticing manner that easily persuades buyers to have excess tools at their facilities hence incurring a lot of costs. However, the EOQ will ensure that I acquire the right number of equipment at a favorable price, thus avoiding over purchasing.
In this business, lubricating oil is one of the essential products that I need to have at my facility to serve customers well. It is the most used equipment that enables users to perform various exercises with ease. In my examination, I discovered that a barrel costs Rs 80 per liter. Since this is a high cost for the starting business, I will be purchasing this equipment from a single supplier. The ordering cost of one bench is $10. I intend to make two orders per month since I expect the rising number of clients at my facility.
With the rising health concerns around the world and endangering the lives of most people, especially those having weak immune systems, I anticipate receiving 10000 clients looking to keep fit and healthy on a yearly basis. In a single day, I will charge users $50 for using lubricated equipment. The cost of holding a single barrel at my facility is 20 percent of the entire service price, with the overall demand for lubricating oil assumed to remain constant across the whole year.
Thus, the EOQ of my enterprise will be computed as;
EOQ= (2 × Annual Demand × Ordering Cost ÷ Holding Cost) 1/2
EOQ=
Annual demand = 10000
Ordering Cost (annually) =$10
Holding Cost=$ 0.2 * 50 = $10
Hence,
EOQ = {2 * 10000 * 10/ 10}1/2
⸫141.421units
The above EOQ for my business shows that I need to order 141.421 liters of lubricating oil throughout the year to be able to serve my clients well. Further to this, I will be able to avoid higher inventory costs, thus provide more profitability for my business.
References
Sebatjane, M. 1., & Adetunji, O. 1. (2019, December). Economic order quantity model for growing items with incremental quantity discounts. Journal of Industrial Engineering International; , 15(4), 545-556. doi:http://dx.doi.org/10.1007/s40092-019-0311-0
References