Economic Order Quantity (EOQ)
• Imagine a single item, held in stock to meet a
constant demand of D per unit time.
• Assume that unit cost (U), reorder cost (R) and
holding cost (H) are all known exactly, while the
shortage cost is so high that all demands must be
met and no shortages are allowed.
• The item is bought in batches from a supplier who
delivers after a constant lead time.
• We want to find the best order quantity, Q, and
always place orders of this size.
Economic Order Quantity
over some period.