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The Economic Order-Quantity (EOQ) Model

  • Leroy B. Schwarz
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 115)

The economic order-quantity model considers the tradeoff between ordering cost and storage cost in choosing the quantity to use in replenishing item inventories. A larger order-quantity reduces ordering frequency, and, hence ordering cost/ month, but requires holding a larger average inventory, which increases storage (holding) cost/month. On the other hand, a smaller order-quantity reduces average inventory but requires more frequent ordering and higher ordering cost/month. The cost- minimizing order-quantity is called the Economic Order Quantity (EOQ). This chapter builds intuition about the robustness of EOQ, which makes the model useful for management decision-making even if its inputs (parameters) are only known to be within a range of possible values. This chapter also provides intuition about choosing an inventory-management system, not just an EOQ.

Keywords

Order Quantity Demand Rate Average Inventory Economic Order Quantity Quantity Discount 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  • Leroy B. Schwarz

There are no affiliations available

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