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Featured Innovator Ford Whitman Harris

Every other week, we acknowledge an individual throughout history who has brought long lasting innovation to the supply chain and logistics industry.

Ford Whitman Harris: EOQ

Happy Monday!

The processes and standards in warehouse operations are so ingrained in the industry, that many of us never stop to wonder how they started.

In inventory management, The Economic Order Quantity (EOQ) model is “the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.” (https://www.investopedia.com/terms/e/economicorderquantity.asp)

The EOQ is the square root formula for ordering inventory, which has appeared in various academic articles and texts for the past 100 years. It has been used by businesses to help minimize the amount of cash they have tied up in inventory, so it can be used for some other business purpose or investment.

The simple square-root formula for the optimal order quantity followed directly from Harris's assumption of a continuous constant rate for demand and his recognition of the need to balance intangible inventory costs against the tangible costs for ordering.

 

Graphical representation of EOQ model

Harris, who received no education past high school, first published his model in a 1913 article which was described as a “modeling achievement of classical elegance.” He would go on to make contributions as an engineer, inventor, author, and patent attorney.

Even his original presentation of the model, which defines costs on a per item basis, is easier to interpret than the standard textbook development, which expresses costs as an average per unit of time. Harris's basic EOQ model became the dominant paradigm for order-quantity analysis for at least the next 40 years.

The supply chain industry would not be the same without Ford Whitman Harris’ EOQ model for inventory management – he is a true example of an innovator!

Make sure to check back bi-weekly to read about our newest Featured Innovator.

Sources: https://pubsonline.informs.org/doi/pdf/10.1287/opre.38.6.937

https://www.sdcexec.com/sourcing-procurement/article/10732246/how-to-make-eoq-relevant-again

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