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A NOTE ON HOLDING COSTS AND LOT‐SIZE ERRORS
Author(s) -
Brown Robert M.,
Conine Thomas E.,
Tamarkin Maurry
Publication year - 1986
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1986.tb00246.x
Subject(s) - function (biology) , sensitivity (control systems) , order (exchange) , holding cost , econometrics , computer science , mathematics , mathematical optimization , statistics , economics , finance , electronic engineering , evolutionary biology , engineering , biology
This note examines the sensitivity of the basic economic‐order‐quantity inventory model to lot‐size errors when holding costs are assumed to be a strictly increasing (though not necessarily linear) function of average inventory. In particular, we show that the penalty associated with ordering either too much or too little is a function not only of the size of the error but of the shape of the holding‐cost curve as well. We demonstrate that, under certain conditions, even relatively small lot‐size errors can be extremely costly.