Holding cost vs. ordering cost trade-offs, the Economic Order Quantity derivation and worked calculation, safety stock and reorder point sizing under real demand and lead-time variability, and ABC inventory classification.
This module keeps three inventory cost components — holding, ordering, and stockout — separate throughout, because collapsing them into one number is exactly how real inventory decisions go wrong. It derives the EOQ formula from first principles (the point where ordering cost and holding cost are exactly equal), works a full numeric EOQ calculation, then builds the reorder point under certainty up into a real safety stock formula that combines demand and lead-time variability into a single Z-based buffer sized to a target service level.
The module closes with ABC classification — why concentrating tight control on the small share of items that drive most of a business's inventory dollars beats applying uniform control to everything — and previews Module 8's supply chain content, where this same correct local EOQ and safety-stock logic, replayed across multiple linked tiers, is exactly what produces the bullwhip effect. If the arithmetic gets away from you anywhere, the studio's free calculators below run this same math live.