Microsoft Excel 2019 Data Analysis and Business Modeling, 6th Edition

Chapter 85 Inventory modeling with uncertain demand

Questions answered in this chapter:

• At what inventory level should I place an order if my goal is to minimize the annual holding, ordering, and shortage costs?

• What does the term 95 percent service level mean?

In Chapter 84, “The economic order quantity inventory model,” I showed you how to use the economic order quantity (EOQ) to determine an optimal order quantity and production batch size. The examples assumed that demand occurred at a constant rate. Thus, if annual demand occurred at a rate of, for example, 1,200 units per year, monthly demand would equal 100 units. As long as demand occurs at a relatively constant rate, the EOQ is a good approximation of the cost-minimizing order quantity. ...