Operations Manager: EOQPROD

EOQ for Production Lot Sizes (EOQPROD)

Alvin Air Systems in Alvin, Texas, produces repair and maintenance items for commercial air conditioning systems. Alvin cannot use the standard EOQ for determining production lot sizes. One problem is that the standard EOQ assumes that an order quantity or lot of material is received all at once. At Alvin, most production lots take some time to complete and parts are placed in stock on a daily basis until the run is over. A related problem is that substantial sales usually occur before the run is over. To solve these problems, Alvin uses the modified EOQ model for production lot sizes. Why? The EOQ must be larger than maximum investment to account for sales made during the production run.