Economic Order Quantity and Its Implementation on Business

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ECONOMIC ORDER QUANTITY AND IT’S IMPLMENTATION IN BUSINESS

Any business man, executive, and entrepreneur should know the basic tools for a company to develop in the market, regardless how big the business is, there are many factors involve. It is very important in every business to handle well developed financial and logistics processes. In order for a company to handle a correct logistic, without matter if it is a goods or services company, it is necessary to identify many factors. Some of the factors to be taken into account are many strategic and financial matters, such as the supply chain management, warehouses, distribution centers, inventory management, packaging and material handling, transportation, among others.

A commonly faced problem in companies is that managers of manufacturing or distribution organizations, doesn’t know which will be the adequate quantity of inventory to have in stock. Many people would think that the more stock a company has is the best. It is true that having a large amount of inventory will help customers to make faster and immediate purchases, shipments will be done quicker, and will prevent the company of being out of stock of certain product and causing some opportunity cost with the customers; it is important to notice that the stocking of products is very expensive. Some companies, such as Wal-Mart or Dell Computers, handle an efficient managing of inventory that has developed their competitive advantage. Wal-Mart helps it suppliers by having the right quantity of their products in the shelves, so that will minimize the inventory accumulation of the merchandise. In the case of Dell, instead of having lots of computers stored in warehouses, waiting to be sold, the company minimizes this cost by building a computer right after an order is placed.[1] They keep at hand many computer components to make this possible, as they have a policy of five-day delivery.

In order for every business to succeed as Wal-Mart and...
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