Study on Applicability and Benefits of EOQ Lot Order Based Cost Optimization in an Apex Tertiary Care Government Hospital in India

Benefits of Economic Order Quantity are established worldwide. In India, limited studies on EOQ have been conducted in hospital setup. This study aimed to calculate benefits of EOQ and its applicability for A-class and AV-category items in hospital

A cross-sectional descriptive study was conducted in medical store of an apex tertiary care hospital in New Delhi, India. ABC analysis was conducted using EXCEL and AV-items identified based on expert opinion for consumptions and hospital formulary for FY 2013–14. Traditional method of costing was used to determine carrying costs, ordering costs and EOQ levels for A-class and AV-items. Benefits of EOQ in reducing costs tied in inventory and opportunity costs were calculated.

A, B and C class items were 12%, 16% and 72% of inventory and accounted for 71%, 20% and 9% of expenditure (335940604 INR), respectively. AV category drugs were 16 (3%). Adopting EOQ method can result in reductions of costs tied in inventory and opportunity costs up to 62% in various groups of inventory items.

Without using EOQ method, costs tied in inventory and lost opportunity costs are high, there can be significant reductions in these if EOQ technique is used. Applicability of EOQ must be contemplated with caution with its assumptions fulfilled as a pre-requisite.