2. Inventory System Model
The assumptions considered in the inventory model are as follows.
1) The EOQ model reduces the expenses of inventory control system. Another important
discussion concerning inventory control system is “what is the confidence level of the
system and how far is it from the ideal level?”. Obviously, the larger the confidence level,
the inventory control system will encounter less problems and can respond better to its
customers' needs. As a result, another assumption is addressed.
2) The EOQ model increases the percentage of confidence level of inventory control
system. In a closed inventory control system, considerable amounts of expenses have
been identified depending on the type of model which is used. But what is called
"inventory control system cost" in this research includes the cost of ordering goods and
their maintenance cost in the warehouse which we shall describe their definitions as
below:
a) Ordering cost – calculating the cost of each order: The ordering cost includes the
groups of expenses related to the activities of goods ordering. This cost does not depend
on the order quantity each time; however, it depends on the number of orders during a
specified period which is usually one year. It consists of the following terms:
The cost of obtaining the price list and the sellers latest prices.
The cost of preparing and confirming the orders.
The costs of receiving activities and comparing the delivered goods with the orders.
The total ordering cost (TCo) is computed by: