Question: You have been hired as an operations research consultant by

You have been hired as an operations research consultant by a company to reevaluate the inventory policy for one of its products. The company currently uses the basic EOQ model. Under this model, the optimal order quantity for this product is 1,000 units, so the maximum inventory level also is 1,000 units and the maximum shortage is 0.
You have decided to recommend that the company switch to using the EOQ model with planned shortages instead after determining how large the unit shortage cost (p) is compared to the unit holding cost (h). Prepare a table for management that shows what the optimal order quantity, maximum inventory level, and maximum shortage would be under this model for each of the following ratios of p to h: 1/3, 1, 2, 3, 5, 10.

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  • CreatedSeptember 22, 2015
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