The EOQ Model Based On The Condition Of Continually Rising Price And Research Of The Inventory Cost Control

The enterprise's inventory cost control tactic aims to obtain proper quantity of raw materials and final product at the least expenses in the right time and in the right place.The classical economic order quantity (EOQ) model discussed the best enterprise's order strategy based on the condition that price of the material is fixed in one cycle of the order.So that, the model ignored the influence of fluctuation of the price in an order cycle.However,the fluctuation of the price is critical to the choice of order strategy by the enterprises,especially when the price in an ordering cycle is continually rising.In this case,the rising price will impetus ordering cost and the carrying cost to rise.In order to avoid the loss caused by the rise of the cost, the enterprise have to raise its product's price up if there are no method for the control of the cost.However, it is not easy and wisdom for an enterprise to raise the price of products arbitrarily. On the other hand,if all enterprises raise up the price of the products,the rise of the price will be more fierce which may let enterprises into more adverse situations.So that,it is quite necessary to do research on the enterprise's inventory control tactic on the condition that the price is continually rising in a cycle.In this article,the concept of some important parameters key to the building and analysis of the model such as inventory cost,economic order quantity,basis,hedge,cost of hedge and so on are defined firstly; Then, the new EOQ model considering the continually rising price is built based on the classic EOQ model and the theory of hedging.Furthermore, the article analyzes how do the continually rising price effect an enterprise's inventory cost and economic order quantity.On the basis of that, the article gives three advice on how to control the inventory cost when the price is continually rising .At the same time, the benefits,Shortcomings and limitations of those method mentioned above are analyzed. In the end,we conclude the article and point out its limitations.We make conclusions as follows:1.The continually rising of price will impetus the cost of money and the order ,so it plays an important role in inventory cost;2.In an order cycle, when the rate of price rising is higher than the rate of money cost,the economic order quantity concluded by new model is larger than that the classic one;If lower, the conclusion is just the opposite;3. Rational use of hedging can ease the pressure of an enterprise's rising inventory cost and avoid the risk of price fluctuation.