Storage Space Costs and the EOQ Model

Abstract

This article examines the EOQ analysis for bulky, inexpensive, low risk items. These items occupy a disproportionately large space in the warehouse and, therefore, incur a high storage space cost. The traditional EOQ model, however, does not recognize the high space cost associated with these items and recommends the ordering of such materials in large quantities due to their low unit cost. In a traditional EOQ model, the space cost is implicitly assumed to be proportional to the price of the item. This article suggests modifications in the EOQ formula to take storage space costs into account explicitly for bulky items. An actual case illustration is presented to show how storage space and costs can be saved through the use of the proposed EOQ-Space model.