Logistics managers have at their disposal at least two well-known competing methods of determining order quantity: Economic Order Quantity (EOQ) and Quick Response (QR). Each method takes a distinct approach and makes substantially different recommendations for order quantity. Although both methods are discussed extensively in the literature and included in logistics and operations management textbooks, a comprehensive comparison of the two methods is not currently available in the logistics literature. Accordingly, the goal of this paper is to compare the EOQ and QR methods in order to propose a set of rules by which managers can select the most appropriate method to use under various circumstances.
The EOQ method, introduced by Ford W. Harris (1915), balances the cost of ordering an item with the inventory holding cost for that item. Given a known level of annual demand, a firm must balance the cost of ordering smaller quantities more frequently to minimize holding cost, against the cost of making a smaller number of larger-quantity purchases to minimize ordering cost. The EOQ determines the optimal order quantity that minimizes the joint cost of ordering and holding inventory.
In contrast, the QR method considers only the inventory holding cost and ignores the ordering cost. QR is a general term that describes the criteria used to determine the order quantity in several well-known rapid-replenishment inventory management methods such as Just-In-Time or Continuous Replenishment. The QR order quantity is just enough to support operations until the next delivery. Therefore, the QR quantity is the product of the daily demand and the time between deliveries, in days. Thus, each inventory replenishment method ignores factors that are included in the other method. While the EOQ method ignores the time between deliveries in the determination of order quantity, the QR method ignores three variables included in the EOQ: the cost of an order, the product's unit value, and the unit cost of holding inventory. Note that there are EOQ models