Question

A. EOQ and TAIC: Give an explanation of how the EOQ and the TAIC are interconnected;

B. Real-world example: pick a real-world firm of your interest, and explain how they would manage their inventory and whether an adaptation of the EOQ model would be useful for them;

Answer 1

1. EOQ is basically economic order quantity which includes number of units which is being added up by companies with each other in their inventory in order to reduce costs related to inventory like holding costs and such more. It basically minimises the level of costs related to inventory, it minimises the holding costs and ordering cost over a period of time for the company.

TAIC is total annual inventory cost which includes the sum of all the purchases, holdings and ordering costs of the company.

So EOQ and TAIC both include costs related to inventory in which TAIC provide the overall sum of all the costs related to inventory and EOQ minimises those inventory costs.

2 - EOQ model is being adopted by many companies like MacDonald corporations. MacDonald corporations mainly follows just in time strategy to manage its inventories. McDonald also uses stock control system in order to manage its inventory stocks properly and efficiently. McDonald uses EOQ model in order to gain high efficiency in its inventory management.