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Assume two inventory problems with identical demand, holding cost, and setup cost. In one, goods arrive...

Assume two inventory problems with identical demand, holding cost, and setup cost. In one, goods arrive instantly, but in the other goods arrive after a fixed lead time. Which of these problems will have a larger optimal order quantity? Why?
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Answer #1

The problem with instant delivery is an EOQ problem, and its optimal order quantity is .

​​​​​​The problem with noninstant (where, goods arrive after a fixed lead time) delivery is a POQ problem, with optimal order quantity ​​​​​​.

The POQ problem (non instant delivery) will yield a higher order quantity than the basic model, other things equal, because the maximum inventory level (and hence the effective carrying charge) is less. Theoritically, maximum inventory is less because some items are used immediately and never even enter inventory.

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