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

The main difference between the Economic Order Quantity (EOQ) model and the \((Q, r)\) model lies in their assumptions about demand and reorder points. 1. The EOQ model assumes that demand is constant and known. In this model, the optimal order quantity, also known as the economic order quantity, aims to minimize the total inventory costs (holding and ordering costs) of the stock. Since demand is steady, the replenishment of inventory happens at the same fixed rate. 2. The \((Q, r)\) model, sometimes called the order-up-to model, assumes that demand is variable and uncertain. In this model, there are two key decision variables: order quantity (Q) and reorder point (r). The model focuses on placing an order of size Q whenever the inventory position falls below r (the reorder point). The reorder point is typically determined by considering the lead time demand, ensuring that the company won't run out of stock during the lead time. To summarize, the key difference between the EOQ model and the \((Q, r)\) model is that the EOQ model assumes constant and known demand, while the \((Q, r)\) model considers uncertain and variable demand.

The base stock model and the \((Q, r)\) model differ in their ordering policies and order quantities. 1. The base stock model is also called the continuous review model. In this model, the inventory is continuously monitored and an order is placed every time a demand occurs. The order quantity is equal to the quantity that has been just consumed, which means the order quantity can be variable. The reorder point in the base stock model depends on the lead time demand. The primary objective of the base stock model is to maintain a constant level of inventory, called the base stock level. 2. The \((Q, r)\) model assumes that demand is uncertain and variable, like in the base stock model. However, the main difference is that the order quantity (Q) is fixed and orders are placed when the inventory position reaches the reorder point (r). The reorder point takes into account the lead time demand and aims to minimize the risk of stockouts during the lead time. To summarize, the key difference between the base stock model and the \((Q, r)\) model is their ordering policies and order quantities. The base stock model orders the exact quantity consumed in order to maintain a constant inventory level, while the \((Q, r)\) model orders a fixed quantity when inventory falls below the reorder point.