Revisiting ROQ: EOQ for Company-wide ROI Maximization

Dan Trietsch

16 citations0/0 files storedJournal of the Operational Research Society

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Supply Chain and Inventory Management Management and Optimization Techniques Operations Management Techniques

Abstract

Although attempts have been made in the past to modify the economic order quantity (EOQ) model to the maximization of return on investment (ROI), they either failed to take the whole enterprise into account, or reached the erroneous conclusion that no adaptation is required for that purpose. In this paper we develop the company-wide ROI maximizing order quantity, and show that it is bounded from above by EOQ and that it does not necessarily follow the square root of the demand level. In fact, there are conditions under which the order quantity is constant, regardless of the demand level, or even decreasing with demand. It is important to note that such a policy, if undertaken by many firms, will reduce the economic accelerator, and thus reduce the volatility of business cycles.

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1963Elements of Production Planning and Control 1987Inventory Policies Under Various Optimizing Criteria and Variable Markup Rates 1931Quantity and economy in manufacture 1976RETURN ON INVESTMENT AS A CRITERION FOR INVENTORY MODELS

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