Constrained Probabilistic Economic Order Quantity Model under Varying Order Cost and Zero Lead Time Via Geometric Programming

Abstract

Problem statement: In this study, we provide a simple method to determine the inventory policy of probabilistic single-item Economic Order Quantity (EOQ) model, that has varying order cost and zero lead time. The model is restricted to the expected holding cost and the expected available limited storage space. Approach: The annual expected total cost is composed of three components (expected purchase cost, expected ordering cost and expected holding cost. The problem is then solved using a modified Geometric Programming method (GP). Results: Using the annual expected total cost to determine the optimal solutions, number of periods, maximum inventory level and minimum expected total cost per period. A classical model is derived and numerical example is solved to confirm the model. Conclusion/Recommendations: The results indicated the total cost decreased with changes in optimal solutions. Possible future extension of this model was include continuous decreasing ordering function of the number of periods and introducing expected annual demand rate as a decision variable.