The Use of ABC Analysis and the Estimation of the Economic Order Quantity for Inventory With Application

Abstract

This research aims to analyze the inventory of raw materials in one of the warehouses of  Diyala General Company. A total of 345 materials were examined, which are used for the production of power transformers, while some are utilized for maintenance purposes. The materials were classified using Pareto’s ABC analysis into three categories: Category A includes 38 materials, accounting for 10% of the inventory but representing 75% of the total inventory value, making them the most critical Category B consists of 71 materials, which make up 20% of the inventory and contribute to 18% of the total inventory value, making them of medium importance. Category C comprises 254 materials, representing 69% of the inventory but only 5% of the total inventory value, making them the least significant. The study also calculates the inventory value and the inventory turnover ratio to assess inventory management efficiency. Additionally, the Economic Order Quantity (EOQ) method is applied to determine the optimal order quantity for purchasing raw materials, components, and spare parts. The goal is to maintain an ideal stock level, preventing excess or shortage of essential materials, thereby minimizing financial losses and material deterioration.