Retailer's EOQ model considering demand and holding cost of the defective items under carbon emission tax

Abstract

This paper presents a retailer's inventory model considering imperfect production process and material handling that cause some defective items. The defective items possess a fraction of its original utility. Therefore, after a quality inspection, the retailer holds them in a different area until they are sold entirely. The proposed model considers the demand and holding cost of the defective items. It also incorporates carbon emission costs from transportation and storage activities. The objective function is to maximize the expected total profit, which simultaneously minimizes the total carbon emissions. A numerical example illustrates the model implementation. From this data set, the optimum order quantity is 1770.1 units, and the backorder quantity is 580.3 units, which give an expected total profit of $ 1, 227, 945 per year and expected total emissions of 0.765 tonCO2/year. Further analysis shows a trade-off between economic and environmental performance. Incorporating carbon emission costs into an EOQ model will reduce the expected total carbon emissions. However, it also causes a reduction in the expected total profit.