At what inventory level (called the

*reorder point*) should I place an order if my goal is to minimize the sum of annual holding, ordering, and shortage costs?What does the term

*95 percent service level*mean?

In Chapter 65, we used the economic order quantity (EOQ) to determine an optimal order quantity and production batch size. We assumed that demand occurred at a constant rate. Thus, if annual demand occurred at a rate of, say, 1200 units per year, during each month 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.

In reality, demand during ...

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