In the EPQ formula, what does the letter 'D' typically represent?

In the Economic Production Quantity (EPQ) formula, the letter 'D' typically represents annual demand. This signifies the total quantity of product that is expected to be sold or required over the course of a year. Understanding annual demand is crucial for businesses as it helps in calculating the optimal production levels needed to meet customer orders without overproducing or underproducing.

The EPQ model is used to determine how much product should be produced in each production run while considering factors like production rate, setup costs, and holding costs. Since annual demand directly influences inventory levels, knowing how much demand to expect in a year allows businesses to plan their production schedules effectively.

By accurately assessing 'D', companies can make informed decisions regarding resource allocation, production schedules, and inventory management, all of which are essential for maintaining efficiency and reducing costs.