Compare and contrast EOQ and EPQ inventory control models Pr

Compare and contrast EOQ and EPQ inventory control models. Provide details of assumptions of each model and advantages and disadvantages of each. If a firm converts to EPQ, would its order quantity (Q) be less or more? Explain

Solution

EOQ = Economic order quantity = sqrt(2*Demand*Ordering cost/Holding cost)

Assumptions:

EPQ = Economic Production quantity = sqrt((2*Demand*Ordering cost/Holding cost)*(p-d)/p)

p = Production rate

d = Demand rate

Assumptions:

Use of EOQ:

Use of EPQ:

Advantage of EOQ: It is simpler in computation and determines the quantity basis requirement. It also helps to minimize inventory

Disadvantage of EOQ: It doesn\'t minimizes overall company cost as it ignores production rate

Advantage of EPQ: It helps to minimize the total cost as it factors in production rate

Disadvantage of EPQ: It includes several factors apart from EOQ and makes it bit complex to work. It is more suited for production environment

If a firm converts to EPQ, the order quantity will be less as in formula (p-d)/p will be multiplied which will have value less than 1