EOQ electronics example
Short-lifecycle electronics carry a steep obsolescence penalty. Typical carrying cost runs 30 to 40 percent: capital 8 to 10 percent, warehousing 2 to 4 percent, plus 20 to 25 percent obsolescence reflecting a 12 to 18 month sunset cycle[1]. Wilson applies during the stable life phase; at sunset, switch to a "last-time-buy" deterministic single-period model.
The worked example
| Annual demand D | 6,000 units (stable phase) |
| Order cost S | $150 / PO |
| Unit cost C | $85 |
| Carrying cost i (with 25 pp obsolescence) | 35% |
| Holding H = i*C | $29.75 / unit / year |
| Annual holding | $3,659 |
| Annual ordering | $3,659 |
| Annual total (ex. purchase) | $7,318 |
Why 35 percent carrying cost
REM Associates puts industry-typical i at 20 to 30 percent baseline[2]. Electronics layers an obsolescence-write-down expectation on top: if 20 percent of stock is written off at end of cycle, the effective annualised obsolescence load is roughly 20 to 25 percentage points. That bumps total i to 35 to 40 percent for fast-depreciating SKUs.
When EOQ stops, last-time-buy starts
At 90 days before announced end-of-life, the planning horizon becomes finite and constant-D no longer holds. The right tool is the last-time-buy quantity: forecasted demand through end-of-service-life plus a service buffer, minus on-hand. EOQ’s repeating cycle assumption is the binding failure.