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Chapter 2: Problem 9

What is the key difference between the EOQ model and the ( \(Q, r\) ) model? Betwoen the base stock model and the \((Q, r)\) model?

Short Answer

Expert verified
Answer: The main difference between the EOQ Model and the (Q, r) Model is the consideration of lead time and the reorder point. The EOQ Model focuses on finding the optimal order quantity by minimizing total inventory management costs under the assumption of instantaneous replenishment, while the (Q, r) Model orders a fixed quantity when the inventory level reaches the reorder point, considering lead time.

Step by step solution

01

EOQ Model Definition

The EOQ Model is an inventory management model that aims to find the optimal order quantity that minimizes the total cost of inventory management, including ordering costs, holding costs, and shortage costs. The model assumes a constant demand rate, no lead time, and instantaneous replenishment.
02

\((Q, r)\) Model Definition

The \((Q, r)\) Model, also known as the order point-order quantity model, is an inventory management model where a fixed quantity \(Q\) is ordered when the inventory level reaches a predetermined reorder point \(r\). This model considers lead time, and the demand rate may be constant or stochastic.
03

Base Stock Model Definition

The Base Stock Model is an inventory management model that focuses on maintaining a constant inventory level to maximize customer service levels. In this model, an order is placed as soon as an item is sold or used, and the quantity ordered is equal to the quantity sold or used. This model also considers lead time, which may be constant or stochastic.
04

Key Difference between EOQ Model and \((Q, r)\) Model

The main difference between the EOQ Model and the \((Q, r)\) Model is the consideration of lead time and the reorder point. While EOQ focuses on finding the optimal order quantity by minimizing total inventory management costs under the assumption of instantaneous replenishment, the \((Q, r)\) Model orders a fixed quantity when the inventory level reaches the reorder point, considering lead time.
05

Key Difference between Base Stock Model and \((Q, r)\) Model

The main difference between the Base Stock Model and the \((Q, r)\) Model is the order placement strategy. In the Base Stock Model, an order is placed as soon as an item is sold or used, aiming to maintain a constant inventory level. On the other hand, the \((Q, r)\) Model orders a fixed quantity when the inventory level reaches the reorder point, without the objective of maintaining a constant inventory level.

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Most popular questions from this chapter

Consider the following situations. Label them as either A for appropriate or \(L\) for less appropriate for application of the \(\mathrm{EOQ}\) model. a. Automobile manufacturer ordering screws from a vendor b. Automobile manufacturer deciding on how many cars to paint per batch of a particular color A job shop ordering bar stock d. Office ordering copier paper A steel company deciding how many slabs to move at once between the casting furnace and the rolling mill

Why is the statement "The reorder point \(r\) affects customer service, while the replenishment quantity \(Q\) affects replenishment frequency" true in rough terms but not precisely true?

Give at least three criticisms of the validity of the Wapner-Whitin model.

What is the key difference in the modeling assumptions between the \(\mathrm{EOQ}\) and the Wagner-Whitin models?

Harris, in the original 1913 paper on the \(\mathrm{EOQ}\) model, suggested that "most managers, indeed, have a rather hazy idea as to just what this [setup] cost amounts to." a. Do you think that setup cost, as defined in the EOQ model, is more easily specified today than in 1913 ? Why or why not? b. Give some examples of costs that might make up this setup cost. c. What might setup cost in the model actually be serving as a surrogate for in the real system?
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