8

Only the EOQB approximation (approximation 2) has a fixed worst-case error bound. Zheng (1992) proved an error bound of $\frac18$, and Axsäter (1996) proved a stronger bound of $(\sqrt{5}-2)/2 \approx 0.118$, which is tight. The EOQ+SS approximation (approximation 1) does not have a fixed worst-case error bound; for any $m$, we can find a problem instance ...


6

In the EOQ setting, the total cost incurred during one order cycle is: $$TC = K + \frac{hQ^2}{2 \lambda} \;\;,$$ where the units of $K$ must be only \$ and $Q$ measures the inventory count in items after placing the order at the beginning of the cycle. If $K$ were to have units of \$ per order (or per cycle), then the second term must also have those units ...


5

The coefficient $2$ in the first equation has unit $1/\text{order}$, so the second approach is the right one, and $Q^*$ has units $\text{item}/\text{order}$. The unit comes from the holding cost $hQ/2$ in the formula for the total cost, which assumes that for order quantity $Q$ (items/order) you have in average $1/2$ order in stock, so $1/2$ has unit "order"...


4

It is an interesting question. EOQ model starts from that the minimum point of the total cost (Inventory holding + Ordering cost). At the minimum point, the Inventory holding cost equals to the Ordering cost. (of course you can use calculus to find the minimum point but the answer will be the same) $\frac{Q}{2}h = \frac{\lambda}{Q}K$ The problem starts ...


3

I remember encountering the same question when teaching Operations Management for the first time. The thing is, annual total inventory cost is simply total annual ordering cost plus total annual holding cost, all of them measured in $\frac{\$}{\rm year}$. The total ordering costs is simple: number of orders per year times fixed cost per order: $\frac{D \, \...


1

So as a formal answer: your $Q$ is $600$ as the average cycle stock is in pieces. So $$average\space cycle\space stock = 300 = \frac{Q}{2} \implies Q = 300 \times 2 = 600 $$ The total average cycle stock value in the exchange curve is the sum of all average cycle stocks of all items in your group you are evaluating, expressed in value. So for one item, your ...


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