The Analysis of the Economical Order Quantity and Reorder Points: A Case Studies of Washing Machine Parts Stores

Abstract

This research aims to analyze the flexibility of the application of the most economical order quantity (EOQ) and reorder point (ROP) to manage inventory of company stores spare washer. Collecting semi-structured data from telephone interviews which has compiled financial and accounting documents of the business to calculate the most economical order quantity and the new order point of the product group with the annual cumulative value of 10 items according to ABC analysis theory. The results of the study and comparing the cost of current inventory management with the cost of inventory management according to the EOQ model of the Group A product found that the current business will have a purchase order equal to 180 times a year and when calculated by method but the EOQ business will have an order amount of 87.98 times. Therefore, if the economic order form is used in inventory management, the number of orders will be reduced. Resulting in lower order costs and higher storage costs due to the quantity of orders that have changed according to the number of orders. Consequently, the method of calculating the most economical order quantity and the reorder point will help the enterprise to know the behavior of the inventory to be used as a preliminary data for decision making and can be applied to plan the order according to the context of the business for maximum benefit