Economic order quantity model with deterioration factor and all-units discount

Abstract

Inventory related with the illiquid assets for a company and its amount must be carefully calculated. Inventory cost usually consists of purchasing, ordering, holding and shortage cost; however, when there is a possibility that the goods are damage, deteriorated or exceed its expiration date, the so-called deteriorated cost must be considered in the total inventory cost. In this paper we consider an economic order quantity (EOQ) inventory model by considering the possibility of goods to be deteriorated or damage or exceed its expiration date. We also consider an all-units discount scheme offered by the supplier that affect the inventory cost formation in this model. Numerical examples are given to illustrate the model and sensitivity analysis of the shortage cost is also provided. Higher shortage cost will make the total inventory cost higher and the optimal order quantity is obtained by taking the cheapest price the supplier has offered.