Question

Compare and contrast the economic order quantity (EOQ) and cost concept for the supply chain.

Answer 1

Answer :

In the supply chain, and Economic Order Quantity (EOQ) is used to calculate for every order to minimize the overall cost of the product by measuring the number of units a business can add to its product. The EOQ is an ideal order quantity for the business, minimizing the overall order, obtaining, and retaining inventory costs of the organization. Supply chain management ( SCM) has become a very powerful method for every business as it aims at providing all stakeholders with a win-win situation by maximization of the productivity of the entire chain. The proposed cost classification for an economic cost model expands the definition of cost beyond traditional administrative expenses, breaking down the overhead costs according to its cost center and adding cost incentives to quantify overlooked costs for the introduction of non-value activities. Although such savings are ignored, they are neglected by conventional costing approaches, and thus the ability to cooperate on these projects (of chain construction) is dismissed. The total cost analysis reflects the notion that in addition to the individual cost control separate from one another, the amount of functional costs within the organization is to be handled.EOQ is a primary cash-flow instrument. The formula will help a company manage the cash in the inventory balance. The inventory is their largest asset for many companies, other than their human resources, and these companies must have enough inventories to meet the clients ' needs. If EOQ can help minimize inventory levels, the savings in cash can be made for other business or investment purposes. The cost principle is one of the approaches used for cost-plus pricing to assess the sales price of a commodity and it can, thus, be presumed that this is its cost if the balance sheet shows an asset at a certain value, unless otherwise categorically specified.

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