Financial Effects Of Inventory Management In Trading Companies - EOQ model 

UDC 330.123.3:005

Nikola Milićević1, Milivoje Davidović1, Marina Stefanović2

1The Faculty of Economics Subotica, Serbia

2Metropolitan University Belgrade, Serbia

IM 09

Abstract.

Effective financial management of trading companies refers to the constant

questioning of the necessity of investing in any form of business assets. Therefore,

inventories, which often assume major cash investments, must be carefully monitored

and controlled.

Special emphasis is placed on the costs arising from their existence. Based on the analysis of the costs associated with acquiring and holding an inventory, commercial companies make different decisions regarding the size of the order and the time of its placement.

Application of various models, including the "optimal inventory management" model, can significantly facilitate the decision-making process.

The analysis in this paper focuses on the effects of the application of the EOQ model in

supplies optimization of the company "XY".

The analysis showed that there is an economic motivation to apply this model, since its implementation significantly reduces the inventory costs, which contributes to overall profitability.

By applying this model in the case of the trading company “XY”, the total inventory costs would be lower by 1.88%.

Ordering costs would be reduced by 30%, the inventory holding costs would increase by 7.45%, but it would significantly reduce investment in inventories.

Key Words: inventory holding costs, costs of ordering, safety stocks, EOQ model.