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2019•SSRN Electronic JournalOpen access

ECONOMIC ORDER QUANTITY (EOQ)

Sengottayan Senthil‐Nathan

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Abstract

In stock management, Economic Order Quantity (EOQ) is an important inventory management system that demonstrates the quantity of an item to reduce the total cost of both handling of inventory (Handling Cost) and order processing (Ordering Cost). The purpose of determining the EOQ is to minimise the Total Incremental Cost (TIC), beyond the cost of purchasing of a product/material, in consideration of two main total costs: Total Ordering Cost (TOC) and Total Handling Cost (THC). This paper contextually highlights two basic methods of determining the EOQ: Trial and error method and Mathematical approach and emphasises the mathematical model as highly useful to enhance the inventory management of a product.

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What this paper is about

In stock management, Economic Order Quantity (EOQ) is an important inventory management system that demonstrates the quantity of an item to reduce the total cost of both handling of inventory (Handling Cost) and order processing (Ordering Cost). The purpose of determining the EOQ is to minimise the Total Incremental Cost (TIC), beyond the cost of purchasing of a product/material, in consideration of two main total costs: Total Ordering Cost (TOC) and Total Handling Cost (THC). This paper contextually highlights two basic methods of determining the EOQ: Trial and error method and Mathematical approach and emphasises the mathematical model as highly useful to enhance the inventory management of a product.

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Available abstract

In stock management, Economic Order Quantity (EOQ) is an important inventory management system that demonstrates the quantity of an item to reduce the total cost of both handling of inventory (Handling Cost) and order processing (Ordering Cost). The purpose of determining the EOQ is to minimise the Total Incremental Cost (TIC), beyond the cost of purchasing of a product/material, in consideration of two main total costs: Total Ordering Cost (TOC) and Total Handling Cost (THC). This paper contextually highlights two basic methods of determining the EOQ: Trial and error method and Mathematical approach and emphasises the mathematical model as highly useful to enhance the inventory management of a product.

Key concepts: Economic order quantity, Purchasing, Inventory cost, Total cost, Safety stock, Stockout, Inventory management, Holding cost

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