Abstract
While textbooks concentrate on an analysis of the relative increase of an item’s setup and holding costs when deviating from the classical economic order quantity (EOQ) we present an analysis with respect to total variable costs. The increase of total variable costs depends on three parameters: The relative deviation from the EOQ, the carrying charge and the optimal time between orders (TBO) of a product. The term lot-sizing flexibility is introduced as a multiple M of the optimal TBO where the increase of total variable costs stays within given limits. It turns out that lot-sizing flexibility increases sharply the smaller the optimal TBO is. Considering a product with a TBO ≤ 4 weeks and a carrying charge ≤ 10% p.a. the range of acceptable lot sizes becomes so large that implementing the “optimal” EOQ is irrelevant (especially in light of the difficulty of finding the “correct” setup and holding cost figures).
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