Final answer:
Economic Order Quantity (EOQ) is the optimal order quantity in inventory management that minimizes total cost. Effective inventory management impacts ROA by reducing holding costs and improving asset turnover. Planning and controlling relationships with suppliers and logistics service providers are important in inventory management.
Step-by-step explanation:
Economic Order Quantity (EOQ) in inventory management is the optimal order quantity that minimizes the total cost of inventory. It takes into account the costs of ordering, holding, and storing inventory. For example, let's consider a manufacturing company that produces smartphones. The company uses EOQ to determine the best quantity of materials, such as microchips and batteries, to order from its suppliers.
Inventory management directly impacts Return On Assets (ROA). By optimizing inventory levels, a company can reduce holding costs, improve cash flow, and increase asset turnover. For instance, when a company keeps excess inventory, it ties up capital that could be invested elsewhere, thus reducing ROA.
Planning and controlling relationships with suppliers and logistics service providers is crucial in inventory management. Effective communication and collaboration help ensure timely delivery of materials and products, prevent stockouts or excess inventory, and maintain favorable pricing terms. For example, a company may establish long-term contracts or negotiate discounts with reliable suppliers and logistics partners.