Underlying Assumptions
- The ordering cost is constant.
- The rate of demand is known, and spread evenly throughout the year.
- The lead time is fixed.
- The purchase price of the item is constant i.e. no discount is available
- The replenishment is made instantaneously, the whole batch is delivered at once.
- Only one product is involved.
EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A common misunderstanding is that the formula tries to find when these are equal.)
Read more about this topic: Economic Order Quantity
Famous quotes containing the words underlying and/or assumptions:
“Mothers seem to be in subtle competition with teachers. There is always an underlying fear that teachers will do a better job than they have done with their child.... But mostly mothers feel that their areas of competence are very much similar to those of the teacher. In fact they feel they know their child better than anyone else and that the teacher doesn’t possess any special field of authority or expertise.”
—Sara Lawrence Lightfoot (20th century)
“Unlike Boswell, whose Journals record a long and unrewarded search for a self, Johnson possessed a formidable one. His life in London—he arrived twenty-five years earlier than Boswell—turned out to be a long defense of the values of Augustan humanism against the pressures of other possibilities. In contrast to Boswell, Johnson possesses an identity not because he has gone in search of one, but because of his allegiance to a set of assumptions that he regards as objectively true.”
—Jeffrey Hart (b. 1930)