InClass377_070920 - Chapter 11 - Inventory Management See...

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Chapter 11 - Inventory Management See page 426, the page of formulae Notice, the page is divided into 8 sections, matching the layout of the chapter. The first 7 sections are all EOQ, or modifications of the EOQ. The 8th section stands alone as something different. EOQ is "traditional". 100 years ago, it was much more often a good idea to use the EOQ. Today, sometimes (pretty often, actually), your professor thinks many companies use EOQ when they ought not. EOQ = SQRT(2*Demand*OrderCost / HoldingCost) The EOQ attempts to balance the cost of placing an order against the cost of holding inventory. What are the defects of the EOQ? 1 Deterministic demand (and even stochastic demand) is unrealistic. Real demand is dynamic. 2 We assume that it is possible to manage inventory orders in a tightly defined systematic fashion. (This would require an elimination of many political and information inefficiencies that exist in real-world companies.) 3 To use the EOQ, we need to estimate a static, and fairly well-known order cost value. We also need to believe that the order cost value is more important than
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InClass377_070920 - Chapter 11 - Inventory Management See...

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