The EOQ Model with Back Order and Acceleration of Ordering

Oct 13, 2025 by vinooalluri.com 8 views

Introduction

In today's fast-paced business environment, companies are constantly seeking ways to improve their operational efficiency and reduce costs. One area that plays a crucial role in achieving this goal is inventory management. CV. Naga Mas, a company that prioritizes efficiency in inventory management, has been focusing on efforts to meet customer demand on time. However, inaccurate inventory control processes, such as determining the number of orders (Q), reorder points (ROP), and safety stock (SS), can result in excess or lack of inventory, leading to an increase in total inventory costs. This situation has a negative impact on the company's profitability.

The Importance of Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ) is a method designed to minimize total inventory costs through the right calculation of the optimal number of orders. This approach helps companies to manage inventory more efficiently, by minimizing ordering costs and storage costs. The EOQ model is widely used in various industries, including manufacturing, retail, and logistics. By applying the EOQ model, companies can reduce their inventory costs, improve supply chain management, and increase customer satisfaction.

The EOQ Model with Back Order and Acceleration of Ordering

In this study, the EOQ model was used in conjunction with a back order approach and ordering acceleration. The back order approach allows companies to meet customer demand by ordering additional stock when the current stock is depleted. This approach helps to reduce the risk of stockouts and improve customer satisfaction. The acceleration of ordering, on the other hand, enables companies to place orders more frequently, reducing the time between orders and improving inventory turnover.

Results and Analysis

The results of the study showed that the use of the EOQ model with back order and ordering acceleration resulted in a total inventory cost of Rp 215,974,433. This is a significant reduction from the previous total cost of Rp 383,540,500, resulting in a difference of Rp 167,566,067. This represents a potential savings of 43.68%. The application of the EOQ model with back order and ordering acceleration demonstrates the importance of efficient inventory management in reducing costs and improving supply chain management.

Benefits of Efficient Inventory Management

Efficient inventory management not only has an impact on a company's financial health but also increases customer satisfaction due to accuracy in meeting timely demand. By adopting the EOQ model with back order and ordering acceleration, CV. Naga Mas can improve its overall supply chain management, reduce costs, and increase customer satisfaction. This, in turn, can lead to increased competitiveness in the market and improved profitability.

Conclusion

In conclusion, the application of the EOQ model with back order and ordering acceleration can make a significant contribution to reducing inventory costs and improving supply chain management. CV. Naga Mas can benefit from this approach by reducing its total inventory costs, improving customer satisfaction, and increasing competitiveness in the market. Therefore, it is essential for CV. Naga Mas to continue to consider the use of the EOQ model in controlling raw material inventory. By conducting periodic analysis and evaluation, companies can identify areas for further improvement, ensure more efficient operations, and maintain competitiveness in increasingly stringent markets.

Recommendations

Based on the findings of this study, the following recommendations are made:

CV. Naga Mas should continue to use the EOQ model with back order and ordering acceleration to manage its raw material inventory.
The company should conduct periodic analysis and evaluation to identify areas for further improvement and ensure more efficient operations.
CV. Naga Mas should consider implementing a just-in-time (JIT) inventory system to further reduce inventory costs and improve supply chain management.
The company should invest in inventory management software to improve the accuracy of inventory data and reduce the risk of stockouts.

Future Research Directions

Future research should focus on the following areas:

Developing a more advanced inventory management model that incorporates machine learning and artificial intelligence.
Investigating the impact of inventory management on supply chain resilience and sustainability.
Conducting a case study on the implementation of the EOQ model with back order and ordering acceleration in a different industry or company.

Limitations of the Study

This study has several limitations, including:

The study was conducted on a single company, CV. Naga Mas, and may not be generalizable to other companies.
The study only considered the EOQ model with back order and ordering acceleration and did not explore other inventory management models.
The study did not consider the impact of inventory management on supply chain resilience and sustainability.

Conclusion

Q: What is the Economic Order Quantity (EOQ) model?

A: The EOQ model is a method designed to minimize total inventory costs through the right calculation of the optimal number of orders. This approach helps companies to manage inventory more efficiently, by minimizing ordering costs and storage costs.

Q: What is the back order approach in the EOQ model?

A: The back order approach allows companies to meet customer demand by ordering additional stock when the current stock is depleted. This approach helps to reduce the risk of stockouts and improve customer satisfaction.

Q: What is the acceleration of ordering in the EOQ model?

A: The acceleration of ordering enables companies to place orders more frequently, reducing the time between orders and improving inventory turnover.

Q: What were the results of the study on the EOQ model with back order and ordering acceleration?

A: The results of the study showed that the use of the EOQ model with back order and ordering acceleration resulted in a total inventory cost of Rp 215,974,433. This is a significant reduction from the previous total cost of Rp 383,540,500, resulting in a difference of Rp 167,566,067. This represents a potential savings of 43.68%.

Q: What are the benefits of efficient inventory management?

A: Efficient inventory management not only has an impact on a company's financial health but also increases customer satisfaction due to accuracy in meeting timely demand. By adopting the EOQ model with back order and ordering acceleration, CV. Naga Mas can improve its overall supply chain management, reduce costs, and increase customer satisfaction.

Q: What are the recommendations for CV. Naga Mas based on the findings of this study?

A: The following recommendations are made:

CV. Naga Mas should continue to use the EOQ model with back order and ordering acceleration to manage its raw material inventory.
The company should conduct periodic analysis and evaluation to identify areas for further improvement and ensure more efficient operations.
CV. Naga Mas should consider implementing a just-in-time (JIT) inventory system to further reduce inventory costs and improve supply chain management.
The company should invest in inventory management software to improve the accuracy of inventory data and reduce the risk of stockouts.

Q: What are the future research directions based on the findings of this study?

A: Future research should focus on the following areas:

Developing a more advanced inventory management model that incorporates machine learning and artificial intelligence.
Investigating the impact of inventory management on supply chain resilience and sustainability.
Conducting a case study on the implementation of the EOQ model with back order and ordering acceleration in a different industry or company.

Q: What are the limitations of the study?

A: This study has several limitations, including:

The study was conducted on a single company, CV. Naga Mas, and may not be generalizable to other companies.
The study only considered the EOQ model with back order and ordering acceleration and did not explore other inventory management models.
The study did not consider the impact of inventory management on supply chain resilience and sustainability.

Q: What is the conclusion of the study?

A: In conclusion, the application of the EOQ model with back order and ordering acceleration can make a significant contribution to reducing inventory costs and improving supply chain management. CV. Naga Mas can benefit from this approach by reducing its total inventory costs, improving customer satisfaction, and increasing competitiveness in the market. Therefore, it is essential for CV. Naga Mas to continue to consider the use of the EOQ model in controlling raw material inventory. By conducting periodic analysis and evaluation, companies can identify areas for further improvement, ensure more efficient operations, and maintain competitiveness in increasingly stringent markets.