Economic Order Quantity for Inventory Control

The success of a company or business relies on many factors. One is its ability to manage product inventory efficiently, especially when inventory is valued in the millions of dollars and occupies space across many warehouses in many cities. Efficient management ensures that the costs of acquiring and storing inventory are minimized while the amount of products in inventory is maximized. This chapter illustrates an inventory management technique to contain risks and explains how to calculate the typical costs involved. The economic order quantity (EOQ) model is a powerful tool in inventory management. The EOQ model will also suggest that orders are placed at random points. One of the underlying assumptions of the EOQ model is that a constant demand for the product exists. An alternative method to deal with shortages instead of safety stock is backordering.