Optimizing Inventory Management: A Comprehensive Analysis of Economic Order Quantity, Lot Size, Safety Stock, and Reordering Quantity Strategies

Abstract

Inventory management plays a critical role in business operations by ensuring efficient organization to avoid overtime costs, production rate fluctuations, unnecessary subcontracting, high deal expenditures, and delayed purchase penalties during peak demand periods. This study aims to leverage insights from inventory data to optimize lot sizes for materials procured from vendors, aligning them with the firm's capacity. It also addresses safety stock, maximum inventory level, and reorder quantity. The application of Economic Order Quantity (EOQ) models has proven beneficial across various sectors like marketing, automotive, pharmaceuticals, and retail, offering a comprehensive solution in a simplified format to understand inventory system dynamics. This model enables a straightforward calculation of the most cost-effective order quantity, benefiting both retailers and distribution centers by minimizing overall expenses.