Analyzing Warehouse-Retailer Interaction using a Modified Economic Order Quantity (EOQ) Model
This thesis analyzes the interaction between the warehouse and the retailer to find the characteristics that affect the time between orders and the order quantities of the retailer. The classic EOQ model was altered to explicitly include the operating costs at the warehouse and the transportation costs and this, accounts for multiple SKUs and multiple unit loads. This modified EOQ model is referred to as the Economic Order Frequency (EOF) model. Using the design of a typical warehouse, equations for detailed calculation of the individual unit load costs at the warehouse were developed. These equations were then incorporated into the total cost equation of the EOF model. This model was tested by changing values of time between orders using Excel and VBA and the change in optimal order frequencies and minimum total costs were analyzed. ANOVA was used to analyze the effect that different costs had on the order frequency and the minimum total cost. The holding cost per item was found to have the most significant effect on the order frequency and the minimum total cost. Therefore, if the holding cost at the retailer was too high, he/she would order more frequently causing more work at the warehouse but preventing the retailer from incurring high inventory costs. The transportation cost also has a significant effect on the order frequency and the total cost. This indicates that the distance of the retailer from the warehouse is an important factor to be considered while determining orders. The quantity ordered also has an effect on the transportation cost, since a little more than the truck capacity will require an additional truck that will increase the minimum total cost. Hence a balance between the transportation costs and the order quantity has to be considered as well. The labor rate has been found to have no significant effect on the order frequency but has an effect on the minimum total cost when considered with other interactions thus indicating that for a given order frequency as the labor cost increases, the total cost increases (i.e. the retailer will pay more for the same quantity as the warehouse costs increase).
School Location:USA - Ohio
Source Type:Master's Thesis
Keywords:supply chain inventory order fulfilment frequency multiple skus unit loads
Date of Publication:01/01/2004