Benefits and added value of the EOQ model

Oct 13, 2025 by recoveryshake.com 76 views

Introduction

In the world of production and distribution, inventory is often considered a vital form of assets. On one hand, inventory can be seen as an unnecessary burden, but on the other hand, it is also a crucial element to ensure the smooth fulfillment of demand. However, excessive inventory can cause various risks, such as damage to goods and high inventory maintenance costs. Therefore, it is essential for companies to minimize the total cost of inventory by taking into account the needs of the goods to be ordered. One method that can be used to determine the number of orders is the multi-item economic quantity (EOQ) model.

EOQ MULTI ITEM CONCEPT

The Multi-Item EOQ model is a method designed to calculate the quantity of optimal order when the company has several types of goods that need to be managed in inventory. Basically, EOQ helps the company to decide on how much item must be ordered to reduce total costs associated with inventory. This includes booking costs, storage costs, and cost of lack of goods. By using this model, companies can optimize their inventory and ensure that they are not lacking or excess goods. The EOQ model is a powerful tool that can help companies to make informed decisions about their inventory management, thereby reducing costs and improving efficiency.

Case Study: PT Indofarma Global Medika Medan

PT Indofarma Global Medika Medan is one of the pharmaceutical companies that faces challenges in managing generic drug supplies. In this case study, the application of the Multi-Item EOQ model can help companies in determining the number of appropriate generic drug orders. By implementing this model, PT Indofarma can accurately calculate their inventory needs, so as to minimize the risk of loss due to excess or shortage of stock. The company can also use this model to identify areas where they can improve their inventory management, thereby reducing costs and improving efficiency.

Through data analysis and appropriate calculations, the company can produce a comparison diagram between the calculation results using the Multi-Item EOQ model with the method that has been used by the company. The results of this comparison not only provide a clear picture of the effectiveness of the EOQ model, but also educate company management about the importance of the use of more efficient inventory management techniques. This can lead to a significant reduction in costs and an improvement in the overall efficiency of the company.

Benefits and added value of the EOQ model

The application of the Multi-Item EOQ model not only provides cost savings, but also increases the company's operational efficiency. With a more managed inventory, companies can improve services to customers and ensure the availability of timely products. In addition, the use of this model can also help companies in planning purchases in the future, so that expenses can be more controlled. This can lead to a significant reduction in costs and an improvement in the overall efficiency of the company.

The use of the Multi-Item EOQ model also supports the company's sustainability. By reducing waste due to excess inventory, companies can not only save costs, but also contribute to reducing the environmental impact resulting from the production and distribution process. This can lead to a significant reduction in the company's carbon footprint and a more sustainable future.

Implementation of the EOQ model

To implement the EOQ model, companies need to collect data on their inventory levels, demand rates, and costs. This data can be used to calculate the optimal order quantity and frequency. The company can also use this model to identify areas where they can improve their inventory management, thereby reducing costs and improving efficiency.

Conclusion

In the context of PT Indofarma Global Medika Medan, the application of the Multi-Item EOQ model is a strategic step that can increase the effectiveness of generic drug inventory management. By utilizing this model, companies can not only optimize costs, but also improve customer service and support sustainability. The results showing the comparison between the EOQ method and conventional methods become the basis for better decision making in the future.

Recommendations

Based on the case study, the following recommendations can be made:

PT Indofarma Global Medika Medan should implement the Multi-Item EOQ model to determine the optimal order quantity and frequency of generic drugs.
The company should collect data on their inventory levels, demand rates, and costs to use in the EOQ model.
The company should use the EOQ model to identify areas where they can improve their inventory management, thereby reducing costs and improving efficiency.
The company should use the EOQ model to plan purchases in the future, so that expenses can be more controlled.

By following these recommendations, PT Indofarma Global Medika Medan can improve the effectiveness of their generic drug inventory management and reduce costs.

Q: What is the EOQ model and how does it work?

A: The EOQ model is a method designed to calculate the quantity of optimal order when the company has several types of goods that need to be managed in inventory. It helps the company to decide on how much item must be ordered to reduce total costs associated with inventory, including booking costs, storage costs, and cost of lack of goods.

Q: What are the benefits of using the EOQ model?

A: The application of the Multi-Item EOQ model not only provides cost savings, but also increases the company's operational efficiency. With a more managed inventory, companies can improve services to customers and ensure the availability of timely products. In addition, the use of this model can also help companies in planning purchases in the future, so that expenses can be more controlled.

Q: How does the EOQ model support sustainability?

A: The use of the Multi-Item EOQ model also supports the company's sustainability. By reducing waste due to excess inventory, companies can not only save costs, but also contribute to reducing the environmental impact resulting from the production and distribution process.

Q: What are the steps to implement the EOQ model?

A: To implement the EOQ model, companies need to collect data on their inventory levels, demand rates, and costs. This data can be used to calculate the optimal order quantity and frequency. The company can also use this model to identify areas where they can improve their inventory management, thereby reducing costs and improving efficiency.

Q: What are the challenges of implementing the EOQ model?

A: One of the challenges of implementing the EOQ model is collecting accurate data on inventory levels, demand rates, and costs. Additionally, the company may need to invest in new software or systems to support the implementation of the EOQ model.

Q: How can the EOQ model be used in other industries?

A: The EOQ model can be used in any industry that has inventory management needs. This includes manufacturing, retail, and healthcare, among others. The model can be used to optimize inventory levels, reduce costs, and improve operational efficiency.

Q: What are the limitations of the EOQ model?

A: One of the limitations of the EOQ model is that it assumes a constant demand rate and does not take into account seasonal fluctuations or other factors that may affect demand. Additionally, the model may not be suitable for companies with complex inventory management needs.

Q: How can the EOQ model be modified to suit the needs of a specific company?

A: The EOQ model can be modified to suit the needs of a specific company by taking into account factors such as seasonal fluctuations, demand variability, and other factors that may affect demand. Additionally, the model can be used in conjunction with other inventory management techniques to optimize inventory levels and reduce costs.

Q: What are the future developments of the EOQ model?

A: Future developments of the EOQ model may include the use of advanced analytics and machine learning techniques to optimize inventory levels and reduce costs. Additionally, the model may be used in conjunction with other inventory management techniques to optimize inventory levels and reduce costs.

Q: How can the EOQ model be used to improve customer service?

A: The EOQ model can be used to improve customer service by ensuring that products are available when customers need them. By optimizing inventory levels and reducing lead times, companies can improve customer satisfaction and loyalty.

Q: What are the key performance indicators (KPIs) for the EOQ model?

A: The key performance indicators (KPIs) for the EOQ model include inventory turnover, days inventory outstanding, and fill rate. These KPIs can be used to measure the effectiveness of the EOQ model and identify areas for improvement.

Q: How can the EOQ model be used to support sustainability?

A: The EOQ model can be used to support sustainability by reducing waste due to excess inventory. By optimizing inventory levels and reducing lead times, companies can reduce their environmental impact and contribute to a more sustainable future.