TABLE OF CONTENTS As discussed in Chapter 1, organizations that process or move materials have always had toplan. That was true of eighteenth century shipping companies, early manufacturers, and nineteenthcentury railroads. Many authors (see, for example, Hopp and Spearman [2]) date the beginning ofmathematical methods for managing operations to Ford W. Harris s economic order quantity (EOQ)model of about 1913. Harris was one of the first to explicitly recognize the trade-off between thefixed cost associated with configuring machinery to make a specific part and the cost of holdinginventory of that part, and then to turn that tradeoff into a mathematical model: a lot sizeformula.
What is perhaps most noteworthy for our purposes is the realization we have come to over thelast several decades that this model has very limited applicability in manufacturing. With itsassumption of setup cost being associated only with the part at hand (and thus its unawareness ofsequencing issues of other parts to be made on that machinery), its assumption of instantaneousproduction, its assumption that you want to inventory the part at all, and its neglect of load onthe factory (and hence any concept of how much the capacity of production machines is worth tothe business at any given point in time), the EOQ formula result is usually far from the bestproduction quantity at any given time. The model actually applies much better in many distributorenvironments, where the decisions on quantity to reorder usually fit these assumptions moreclosely. It is also applicable for ordering indirect...
