Assumptions of the EOQ Model

EOQ Model Assumptions

• The EOQ model assumes that demand for the product is constant and uniform.
• The model assumes that there is no shortage, or the shortage is not allowed.
• The parameter assumed to be conclusive in the EOQ model is the cost of holding inventory.

Decision-Making Systems

• When demand changes over time, adaptive decision-making systems are used in the EOQ model.

EOQ Model Assumptions (continued)

• The model assumes that there is no discount available for bulk purchases.
• The delivery time is assumed to be constant and known in the EOQ model.
• The purpose of using advanced methods like shortage-based decision-making systems is to handle changes in demand.

Key Concepts

• The key to achieving optimal inventory levels is to balance holding costs and ordering costs.
• The intersection between holding costs and ordering costs curves represents the optimal order quantity.
• Efficient inventory management plays a crucial role in businesses by reducing costs and improving profitability.

Graphical Analysis

• Plotting the cumulative annual costs against the order quantity helps determine the optimal order quantity.
• The intersection between the curves representing holding costs and ordering costs indicates the optimal order quantity.

Inventory Management

• Efficient inventory management is crucial for businesses to reduce costs and improve profitability.
• A key component in achieving optimal inventory levels is to balance holding costs and ordering costs.