The Application of ABC Analysis and Economic Order Quantity for Warehouse Management

Abstract

This research aimed to investigate the warehouse and inventory management system of AT Advance Co., Ltd. by applying ABC Analysis, the Economic Order Quantity (EOQ) model, and the Reorder Point (ROP) technique to improve inventory management efficiency and reduce inventory-related costs. This applied research collected inventory usage data over a 12-month period, including annual demand, unit cost, and relevant inventory cost information. The data were analyzed using ABC Analysis to classify inventory items according to their annual consumption value. Subsequently, Group A items were selected for determining the optimal order quantity using the EOQ model and for calculating appropriate reorder points. The results revealed that the company's inventory consisted of 105 items, which were classified into 33 Group A items, 41 Group B items, and 31 Group C items. Group A accounted for 79.25% of the total annual inventory consumption value, with most items comprising electrical equipment and electrical control devices that are critical to the company's operations. Subsequently, 12 high-priority items from Group A were selected for EOQ analysis. The results indicated that the optimal order quantity varied according to the annual demand and inventory-related costs of each item, enabling a more efficient balance between ordering and holding costs. Furthermore, the calculated reorder points ranged from 0.5 to 4.9 units, which helped reduce the risk of stockouts and provided a more systematic approach to replenishment planning. The findings demonstrate that integrating ABC Analysis, the Economic Order Quantity (EOQ) model, and the Reorder Point (ROP) technique can significantly improve warehouse and inventory management by prioritizing critical inventory items, supporting systematic purchasing decisions, reducing inventory-related costs, and enhancing overall operational efficiency.