Economic order-quantity determination for fuel demand: a case study of a freight forwarder

Abstract

This research focuses on the raw-material management such as fuel of a case study company being a freight forwarder in Chonburi province. The objective is to determine the economic order quantity (EOQ) and the reorder point (ROP) that minimize the total cost of handling. Five forecasting techniques are investigated to predict the future demand, and it was found that the time series decomposition was the most suitable method with the least error. At the result of demand forecasting, the economic order quantity is 16,308.89 liters per time, the total cost of handling the fuel tank is 17,287.43 baht, and there are ordering around 19 times per year. In addition, the sensitivity study on demand factors affecting the cost of fuel tank management are also considered in this paper. It was found that 21% of the increased fuel demand brings the total handling cost is 1728.74 baht or increasing 10%. Therefore, ordering economically can reduce the total cost of 1,295.97 baht, or 6.85%. If the company brings the studied results to improve the ordering process, it will be able to forecast the order quantity more appropriately and effectively.