The Economic Order Quantity model revisited: an Extended Exergy Accounting approach

Abstract The Economic Order Quantity, EOQ , model has been popular among academicians and practitioners for decades. Despite the many variants of the EOQ that have appeared in the literature to fine-tune it to reality, it still has limitations. A major one is that it does not take into account the hidden costs inherent in inventory systems. Some of these costs relate to sustainability issues including environmental, social labor, and economic effects. This paper considers some of these costs, referred to as the exergetic costs, and estimates them using the Extended Exergy Accounting, EEA , approach. Extended Exergy Accounting assigns equivalent exergetic values to capital, labor and environmental remediation costs of a system. The analysis combines the classical exergy analysis with the sustainability factors, which are the labor, capital and environment. The paper uses an exergetic model to determine the EOQ inventory policies for three firms operating in the USA, Germany and China. The results show that the EOQ is different for the three firms because the equivalent exergy of capital, labor and environment remediation costs is different in each country.

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