Application of modified formula of economic order quantity definition to the alcohol producers

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MAGAZINE №4 (63) August 2014


CATEGORY Inventory management  Corporate logistics industrial companies Optimization and economic-mathematical modeling


In this article the authors examine the possibility of adaptation and application of the modified formula of optimal (economic) order quantity definition taking into account the natural wastage on the example of plant using ethyl alcohol (ethanol) in productive activities. For many companies ethanol has a strategic importance in the procurement portfolio, because its application is a compulsory part of the production processes. The shortage of alcohol can lead to downtime and disruption of obligations to customers. Therefore, it is a significant issue to find the ways how to reduce natural losses of alcohol using theoretical and practical approaches of logistics and supply chain management.

The authors have analyzed the findings done by domestic and foreign authors in other fields of economy, where the natural wastages of material resources were due to such factors as shrinkage, adhesion and so on. As a result, it was made an attempt to adapt existing approaches to the volatile substances, such as an alcohol. In addition to proposals how to improve the existing inventory management system, a modified formula is viewed as an effective analytical tool to determine the economic feasibility of alcohol cellar repair, the use of which will allow the plant to reduce natural losses significantly in comparison with the traditional way of alcohol storage in metal drums.

In this paper the authors have analyzed twelve possible scenarios for the enterprise, which allowed compare the effectiveness of different solutions identified in the process of modified formula of economic order quantity application and recommend the most cost-effective decision in comparison with the existing situation.


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