Optimising Inventory Cost Efficiency through the Economic Order Quantity (EOQ) Model

Mohammad Istiaq Azim, Heni Mulyani, Rika Mardiani, Assa Yayang Aliefia

Abstract


This study aims to analyse the effectiveness of applying the Economic Order Quantity (EOQ) model in improving the cost efficiency of raw material inventory in manufacturing companies. The EOQ model is used to determine the optimal order quantity and purchase frequency for raw materials, accounting for ordering and storage costs. This study employs a quantitative descriptive approach, using primary data obtained through a review of company documentation over a three-year period. The analysis was conducted by calculating EOQ, Safety Stock, Reorder Point (ROP), and Total Inventory Cost (TIC) to compare the company policy with the EOQ model results. The study shows that a company policy that does not use the EOQ model leads to overstocking, resulting in higher storage costs and reduced working capital efficiency. Meanwhile, the application of the EOQ model has been shown to reduce total inventory costs and to improve the efficiency of raw material control systems. These findings confirm that the EOQ model can be an effective decision-making strategy to improve inventory cost efficiency in the manufacturing industry.

Keywords


Economic Order Quantity (EOQ); Cost Efficiency; Inventory Management; Safety Stock; Reorder Point; Total Inventory Cost.

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References


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DOI: https://doi.org/10.17509/jpak.v14i1.96061

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