When quantity discounts are available, purchase costs need to be considered when making the quantity decision.

Inventory gets more expensive to carry the further it is down the supply chain.

If customer service was the same regardless, a manufacturer would prefer to keep inventory in the form of raw materials than finished goods.

Inventory allows flexibility in production rates.

Semi-finished assemblies (i.e., sub-assemblies) have independent demand.

If we carry less inventory, total annual order costs will tend to go up.

We are worried about running out of stock all the time.

As the safety stock goes up (with all other factors staying the same), the total annual holding costs will go up as well.

Raw materials are a type of inventory for which EOQ should be used to make decisions.

Shortage costs need to be considered when making the reorder point decision, when all the EOQ assumptions are met.