It is often believed that the square root formula called the EOQ only applies to situations where customers demand small quantities at a fairly constant rate. This note shows that essentially the same formula can be derived for ″lumpy″ customer orders occurring at a variable rate. Also, as the EOQ is derived assuming that a fixed quantity is always ordered for replenishment it does not allow for the overshoot when customer orders exceed the available stock. When the EOQ is large relative to the average cusomer order the overshoot problem can be ignored. However, when the EOQ is small some tentative results involving exponentially distributed customer order quantitiles indicate that substantial savings can be made using a ″minimum order quantity″ policy.
|Number of pages
|Operational Research Quarterly
|Published - 1 Jan 1974