Which inventory management process considers order costs and inventory holding costs?

The economic order quantity (EOQ) model is a fundamental concept in inventory management that specifically takes into account both order costs and inventory holding costs. By calculating the optimal order quantity that minimizes the total costs associated with ordering and holding inventory, businesses can effectively manage their inventory levels.

Order costs refer to the expenses incurred every time an order is placed, while inventory holding costs are associated with storing unsold goods, including warehousing, insurance, depreciation, and opportunity costs of the capital tied up in inventory. The EOQ formula derives the ideal number of units to order that balances these two types of costs, ensuring that a business does not order too frequently (which would increase order costs) or hold too much inventory (which would elevate holding costs).

This approach is particularly favorable for businesses seeking to optimize their inventory processes, reduce costs, and maintain an efficient supply chain. Utilizing the EOQ model enables pharmacy technicians, among others, to make informed decisions about inventory levels that enhance operational efficiency and control expenses effectively.