EOQ Optimization · Logistics Cost Reduction · National Growth Strategy
GOLD Meals — a small frozen meal startup selling 24 SKUs across Arizona, Colorado, Nevada, and Utah — ran what their Operations Manager proudly called a "zero-inventory operation." In practice, this meant placing individual orders every time demand hit 100 units, generating $1.18M in annual logistics costs from excessive ordering cycles and fragmented shipments. Retailers were grumbling about a five-day lead time in a fast-moving category where empty shelves cost sales. The company needed to prove its operations were worth scaling before pursuing nationwide growth.
As outside consultants pitching for the engagement, the team built a compelling "burning platform" — quantifying exactly how much the current approach was costing GOLD Meals and demonstrating the savings achievable through Economic Order Quantity (EOQ) optimization. EOQ calculations were performed per state using August demand, ordering costs, and holding costs for SKU HA3, then extrapolated across all 24 SKUs and 12 months. Separately, the team analyzed three distribution models and built a three-phase national expansion roadmap with a progressive insourcing strategy.
GOLD Meals' Operations Manager believed "zero inventory" was a cost-saving strategy. In reality, it was the most expensive approach possible. Placing a new order every time demand crossed 100 units meant far too many order cycles — each carrying fixed order-processing costs ($90–$100 per CKO) and carrier shipping fees ($80–$110 per shipment) — with no regard for the optimal trade-off between ordering frequency and holding costs.
With a unit cost of $5.50 and a 45% annual holding cost factor ($2.48 per unit per year in refrigerated storage), the math was clear: GOLD Meals was over-ordering relative to the economic optimum, and the compounded annual cost across all 24 SKUs was $1,180,800. The frozen meal market topped $64 billion in the US — but GOLD Meals couldn't get to scale on broken logistics.
Applying Economic Order Quantity principles to determine the optimal order size that minimizes the total of ordering costs and holding costs per state.
EOQ calculated per state using August demand for SKU HA3. Order size per state assumes continuous demand and constant lead times.
Three structural options evaluated for GOLD Meals' nationwide expansion. Only one balances cost, service, and scalability.
GOLD Meals' path from a 4-state regional operator to a profitable national brand — prioritizing demographics, operational readiness, and unit economics at each stage.
Progressive shift from fully outsourced CKO production toward strategic in-house capacity — timed to volume thresholds that justify fixed investment.
PDF · 7 Slides · Burning Platform + Operations + Growth Strategy
XLSX · Q1–Q5 Answers + SKU HA3 August Data + EOQ Model
PDF · 8 Pages · Prof. Christian Hofer · University of Arkansas