7/17/2019 EOQ

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the EOQ model leads to reasonably good recommendations even ifapplied to productionsettings with setup costs. Hence, we will not discuss the analyticalaspects of this. Instead,we want to step back for a moment and reect on how the EOQ model

relates to ourdiscussion of setup times at the beginning of the chapter. common mistake is to rely too much on setup costs as opposed tosetup times. !ore"ample, consider the case of !igure #.# and assume that the monthlycapital cost formilling machine $ is %&,''', which corresponds to %#( per hour)assuming four weeks of *+ hours each. -hus, when choosing the batch sie, and focusingprimarily on costs, /ova0ru might shy away from fre1uent setups. 2anagement might even

consider using theeconomic order 1uantity established above and thereby 1uantify theimpact of largerbatches on inventory holding costs.