Special adaptation of the EOQ formula considering losses due to invested capital in inventory and vehicle load capacity

Abstract

This paper presents a novel specialized adaptation of the EOQ (Economic Order Quantity) formula. With this new approach, it becomes possible to account for various important characteristics within the supply process corresponding to the modern and promising conditions during inventory optimization. Key considerations include: 1) integrating the principle of the time value of money (simple interest) into supply chain models; 2) modifying the objective function to account for losses associated with capital investment, specifically those tied up in inventory, and incorporating the traditional method of recording storage costs; 3) accounting for the vehicle's load capacity/carrying capacity. This adapted EOQ formula is designed for pivotal business models centred on efficient delivery systems. In such models, the costs of successive orders and the operation of the supply chain can be offset by revenue. Therefore, this study establishes the necessary and sufficient conditions for identifying these models. The purpose of this article is to demonstrate how considering these factors during supply chain optimization can potentially further enhance efficiency.