A product has the following gross requirements. Which is cheaper—lot-for-lot or EOQ lot-sizing?
Week
1
2
3
4
Requirements
50
30
40
80
Other data for this scenario include: setup cost = $100, inventory holding cost $1 per unit per week. Beginning inventory is 50 units; there are no scheduled receipts. The usage pattern is expected to continue for the remainder of the year.
Expert Answer
Demand rate, d = Average requirement = (50+30+40+80)/4 = 50
Setup cost, S = 100
Holding cost, H = 1
EOQ = SQRT(2*50*100/1) = 100
Total cost for lot-for-lot ordering = 4 orders * 50 + 0 inventory * 1 = $ 200
EOQ policy
Week 1 2 3 4 5
Requirement 50 30 40 80 50
On hand inventory 70 30 50
Order receipt 100 100
Total cost
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