REVISITING ROQ - EOQ FOR COMPANY-WIDE ROI MAXIMIZATION

Although attempts have been made in the past to modify the economic or der quantity (EOQ) model to the maximization of return on investment ( ROI), they either failed to take the whole enterprise into account, or reached the erroneous conclusion that no adaptation is required for t hat purpose. In this paper we develop the company-wide ROI maximizing order quantity, and show that it is bounded from above by EOQ and that it does not necessarily follow the square root of the demand level. I n fact, there are conditions under which the order quantity is constan t, regardless of the demand level, or even decreasing with demand. It is important to note that such a policy, if undertaken by many firms, will reduce the economic accelerator, and thus reduce the volatility o f business cycles.