The optimal order quantity = lowest warehousing costs for greater efficiency
Depending on the industry, the requirements for warehousing vary greatly, also depending on the degree of organization of the company and the economic and logistical correlations. E.g., the automotive industry often relies on just-in-time delivery, which minimizes the need for in-house warehousing. Others, such as the spare parts warehouse in industry, focus on the widest possible range of components.
What is the optimal order quantity to be able to work economically and efficiently? The optimal order quantity, which is a key figure in business administration, provides information on this.
Optimal order quantity: definition and explanation
The more goods and merchandise are stored in a warehouse and the longer they remain there, the more liquidity is tied up. This is sometimes lacking elsewhere, which limits the company's ability to act. Companies of all kinds therefore endeavor to determine the optimal order quantity for them. This is a key figure that expresses which order quantity is most likely to "pay off" for the company.
This means that the individual cost of the order is weighed up against the associated storage costs. Specifically, the optimal order quantity is the quantity of articles/goods that is associated with the lowest total costs (variable + fixed warehousing and ordering costs) - parallel to the respective service or quality level that the company wants to achieve.
Method for calculating the optimal order quantity:
- Formula according to Andler (basis: constant, static demand)
- Formula according to Wagner-Whitin (basis: dynamic demand)
Basic considerations for the optimal order quantity
As part of procurement logistics, an order quantity is defined that enables the company to minimize the total costs for ordering and warehousing in relation to the desired service level. If the annual requirement is known and is also distributed over the calendar weeks or seasonally, the optimum strategy for orders can be developed. In this case, there are always enough goods in stock and the flow of goods is planned in such a way that it is possible with the least organizational and financial effort.
However, there is a trade-off between inventory costs and procurement costs. If too small quantities are procured in manageable periods of time, procurement costs increase - not least due to the individual effort and lack of discounts due to insufficient quantities. In addition, higher storage costs (= tied-up capital) must be considered in this context, which are incurred for large quantities over a long period of time.
Therefore, the theory of the optimum order quantity and the practically relevant aspects that a company can influence itself differ. To explain this in more detail, it is worth taking a look at the components of the respective cost areas.
- Order costs: This refers to all costs associated with processing the order. From the preparation to the actual completion of the order to the processing of the purchase. The greater the quantity of goods purchased, the easier it is to achieve purchase discounts.
- Warehousing costs: These are the costs incurred for the operation of the warehouse. On the one hand through fixed costs for premises and staff, and on the other through the capital tied up in them. In addition, costs are incurred for insurance, impairments must be taken into account and expenses for inventory management must be considered as a whole.
