This paper studies various economic order quantity (EOQ) models and reviews the potential application and associated benefits. Two EOQ models were the focus of attention: tiered manufacturing prices and a fixed/variable manufacturing price structure. Both cases define a total cost function which serves as the basis for optimization. Additionally, several probability distributions were estimated for the EOQ, which can provide percentiles to use as quote request levels. Introduction: Optimal management of the procurement activity requires the minimization not only of direct and obvious costs such as unit costs, but also of related, but less important, costs. tangible costs. The main costs related to supply are composed of unit cost, inventory holding cost (storage and handling costs), finance costs (capital charge of the company) and order cost (cost of placement of the quote and purchase order). This process of optimizing purchasing and the resulting quantity is commonly referred to as “Economic Order Quantity” analysis. The main objective of this article is to describe potential approaches to optimize AAR procurement processes through economic order quantity analysis. θ_(i,2)) Capital charge: The capital charge is calculated by multiplying the total capital expenditure by the capital charge rate. The capital tax rate is treated as a simple interest calculation charged monthly, on a pro rata basis, to each business unit. DSL's gross annual capital charge is 10%. The AAR is assessed each month as a capital charge per company based on total capital expenditures. The 10% annual contribution is prorated and assessed on a monthly basis (10%/12 = 0.83%). For the purposes of this anal... middle of paper ......with a mix of fixed and variable costs as well as other influences such as learning curves, the manufacturer will experience a reduction in incremental costs for each unit additional purchased. above the minimum purchase quantity of each tier. The primary objective of the methodology below is to capture the inefficiencies of minimum purchase quantities and actual cost-based purchasing. Estimating Fixed and Variable Costs Once tiered pricing is provided by the supplier, their fixed and variable costs can be estimated. A linear regression of the extended costs (unit cost * minimum purchase quantity) for each level against the minimum purchase quantity will provide an estimate of the supplier's fixed (intercept Y) and variable (slope) costs. This information can then be used to negotiate with the supplier updated prices for new tiers based on an updated EOQ analysis.C_i=C_V+C_F q_i^(-1)