N.R. Rajhans, S.B. Patil, Preeti Kulkarni

Abstract

In inventory management, the Economic Order Quantity (E.O.Q.) plays a very important part as it determines the order quantity and hence the periodic number of orders as well. To calculate this EOQ, a variable is required which indicates the inventory carrying cost (I.C.C) as a percentage of the procurement cost. This percentage is generally taken to be 18%. However, in practice the I.C.C. consists of various variable and fixed cost components which vary from industry to industry and hence, I.C.C. cannot always be assumed to be 18% of Procurement Cost. The paper aims at deriving a formula for calculating the Inventory Carrying Cost by including all its cost components. This will help us in calculating the E.O.Q. more accurately and thus the total inventory cost can be reduced, drastically.

Keywords- Economic Order Quantity, Inventory Carrying Cost, Mathematical model