You will recall that in a continuous or fixedorder quantity system, when inventory reaches a specific level, referred to as the reorder point , a fixed amount is ordered. The most widely used and traditional means for determining how much to order in a continuous system is the economic order quantity (EOQ) model, also referred to as the economic lot size model.
EOQ is a continuous inventory system .
The function of the EOQ model is to determine the optimal order size that minimizes total inventory costs. There are several variations of the EOQ model, depending on the assumptions made about the inventory system. In this and following sections we will describe three model versions: the basic EOQ model, the EOQ model with noninstantaneous receipt, and the EOQ model with shortages.