EOQ Rides Again

Despite the criticisms of Woolsey [25] and others, the classical “EOQ” model of Inventory Theory remains useful, both pedagogically and as a stepping-stone towards more realistic variants. Prominent among these are: (a) the one in which stock-outs are permitted but penalized, and (b) the one in which deliveries are gradual (i.e., continuous) rather than instantaneous. Here we also deal with a variant containing both features, (a) and (b). (In addition, a less common variant is considered.) In the spirit of Harris’s original (1913) presentation, the use of calculus is avoided entirely. Instead, it is shown explicitly how all the variants can be solved by “reduction” to the basic model, which is in turn treated by using the simply-proved “base case” of the arithmetic-geometric mean inequality.

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