Topic

# Economic order quantity

About: Economic order quantity is a research topic. Over the lifetime, 3601 publications have been published within this topic receiving 80014 citations. The topic is also known as: Economic Ordering Quantity.

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TL;DR: In this article, a mathematical model for obtaining the economic order quantity for an item for which the supplier permits a fixed delay in settling the amount owed to him is presented, and an example has been solved to illustrate the method.

Abstract: In this paper, mathematical models have been derived for obtaining the economic order quantity for an item for which the supplier permits a fixed delay in settling the amount owed to him. An example has been solved to illustrate the method.

1,204 citations

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TL;DR: In this article, the authors extended the traditional economic production quantity model by accounting for imperfect quality items when using the EPQ/EOQ formulae, and considered the issue that poor-quality items are sold as a single batch by the end of the 100% screening process.

943 citations

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TL;DR: In this paper, an attempt has been made to obtain the optimum order quantity of deteriorating items under a permissible delay in payments, where it is found that the supplier allows a certain fixed period to settle the account, but beyond this period interest is charged under the terms and conditions agreed upon and moreover, interest can be earned on the revenue received during the credit period.

Abstract: In developing mathematical models in inventory control it is assumed that payment will be made to the supplier for the goods immediately after receiving the consignment. However, in practice, it is found that the supplier allows a certain fixed period to settle the account. During this fixed period no interest is charged by the supplier, but beyond this period interest is charged under the terms and conditions agreed upon and, moreover, interest can be earned on the revenue received during the credit period. In this paper an attempt has been made to obtain the optimum order quantity of deteriorating items under a permissible delay in payments. A numerical example is also given. Over the last two decades a lot of work has been published for controlling the inventory of deteriorating items. The analysis of decaying inventory problems began with Ghare and Schrader1, who developed a simple economic order quantity model with a constant rate of decay. Covert and Philip2 extended Ghare and Schrader's model and obtained an economic order quantity model for a variable rate of deterioration by assuming a two-parameter Weibull distribution. Misra3 developed the first production lot size model in which both a constant and variable rate of deterioration were considered and obtained approximate expressions for the production lot size with no backlogging. Furthermore, while developing a mathematical model in inventory control, it is assumed that the payment will be made to the suppliers for the goods immediately after receiving the consignment. However, in day-to-day dealing, it is found that a supplier allows a certain fixed period to settle the account. During this fixed period no interest is charged by the supplier, but beyond this period interest is charged by the supplier under the terms and conditions agreed upon, since inventories are usually financed through debt or equity. In case of debt financing, it is often a short-term financing. Thus, interest paid here is nothing but the cost of capital or opportunity cost. Also, short-term loans can be thought of as having been taken from the suppliers on the expiry of the credit period. However, before the account has to be settled, the customer can sell the goods and continues to accumulate revenue and earn interest instead of paying the overdraft that is necessary if the supplier requires settlement of the account after replenishment. Interest earned can be thought of as a return on investment since the money generated through revenue can be ploughed back into the business. Therefore, it makes economic sense for the customer to delay the settlement of the replenishment account up to the last day of the credit period allowed by the supplier. If the credit period is less than the cycle length, the customer continues to accumulate revenue and earn interest on it for the rest of the period in the cycle, from the stock remaining beyond the credit period. This point was not considered by Goyal4. The primary benefit of taking trade credit is that one can have savings in purchase cost and opportunity cost, which become quite relevant for deteriorating items. In such cases one has to procure more units than required in the given cycle to account for the deteriorating effect. In particular, when the unit purchase cost is high and decay is continuous, the saving due to delayed payment appears to be more significant than when the decay is continuous but

793 citations

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TL;DR: In this paper, an inventory model is considered for deteriorating items with a variable rate of deterioration, where deterioration means decay, damage or spoilage such that the item cannot be used for its original purpose.

Abstract: An inventory model is considered for deteriorating items with a variable rate of deterioration, where deterioration means decay, damage or spoilage such that the item cannot be used for its original purpose. Specifically, the Weibull distribution is used to represent the distribution of the time to deterioration. The EOQ formula is derived under conditions of constant demand, instantaneous delivery and no shortages, and it is shown that the results can be related to previously developed simpler models. A computer program is developed to provide the numerical solution and a numerical example is used to show the solution form and verify that the solution gives minimum total cost per unit time. An economic lot size model has been developed for situation in which the deterioration follows a Weibull distribution. The theoretical derivation was shown to reduce to the previous model found by Ghare and Schrader when the deterioration was exponential in nature and to a non deteriorating EOQ model when det...

705 citations

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TL;DR: In this paper, the authors present a model for analyzing the impact of joint decision policies on channel coordination in a system consisting of a supplier and a group of homogeneous buyers, where the joint decision policy characterized by the unit selling price and the order quantity is coordinated through quantity discounts and franchise fees.

Abstract: This paper presents a model for analyzing the impact of joint decision policies on channel coordination in a system consisting of a supplier and a group of homogeneous buyers. The joint decision policy characterized by the unit selling price and the order quantity is coordinated through quantity discounts and franchise fees. Both the annual demand rate and the operating cost-including the purchase, ordering, and inventory holding costs-depend on the joint decision policy employed. This paper contributes by integrating work addressing quantity discounts on inventory and ordering policies and work focusing on the control mechanism provided by quantity discounts in channel coordination. It is shown that the optimal all-unit quantity discount policy is equivalent to the optimal incremental quantity discount policy in achieving channel coordination. Furthermore, it is shown that quantity discounts alone are not sufficient to guarantee joint profit maximization. The analyses of the general models are illustrated by specific analytical results obtained for a given demand function.

659 citations