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Incorporation of Other Factors

In this section, we briefly discuss four further modifications of the basic EOQ that result from the relaxation of one or more of the assumptions required in the earlier derivation. The treatment of another important situationnamely, where the quantity supplied does not necessarily exactly match the quantity orderedcan be found in Silver (1976). Other references on this topic can be found in Chapter 7. For the case in which the amount of stock displayed on the shelf influences the demand, see Paul et al. (1996).

Nonzero Constant Lead Time That Is Known with Certainty

As long as demand remains deterministic, the introduction of a known, constant, nonzero replenishment lead time (L) presents no difficulty. The inventory diagram of Figure 4.1 is unchanged. When the inventory level hits DL, an order is placed. It arrives exactly L time units later, just as the inventory hits zero.* If the lead time is longer than the time between replenishments, the order should be placed when the on-hand plus on-order level drops to DL. The costs are unaltered so that the best order quantity is still given by Equation 4.4. For example, suppose the lead time for the 3-ohm resistor (from Section 4.2) is 3 weeks. The EOQ is 400, and the weekly demand is 48 (based on a 50-week year). When the inventory on hand falls to 48 3 = 144 units, the order should be placed. Figure 4.9 illustrates this concept. (A nonzero lead time considerably complicates matters when demand is probabilistic; and when lead times themselves can be probabilistic, the analysis also gets even more involved. These cases are discussed in Chapter 6.)

E.q 4.4

Economic Order Quantity =ur2AD Economic Order Quantity =ur2AD