Optimal ordering policies when anticipating parameter changes in EOQ systems

B. Lev, H. J. Weiss and A. L. Soyster

Naval Research Logistics Quarterly, 1981, vol. 28, issue 2, 267-279

Abstract: The classical Economic Order Quantity Model requires the parameters of the model to be constant. Some EOQ models allow a single parameter to change with time. We consider EOQ systems in which one or more of the cost or demand parameters will change at some time in the future. The system we examine has two distinct advantages over previous models. One obvious advantage is that a change in any of the costs is likely to affect the demand rate and we allow for this. The second advantage is that often, the times that prices will rise are fairly well known by announcement or previous experience. We present the optimal ordering policy for these inventory systems with anticipated changes and a simple method for computing the optimal policy. For cases where the changes are in the distant future we present a myopic policy that yields costs which are near‐optimal. In cases where the changes will occur in the relatively near future the optimal policy is significantly better than the myopic policy.

Date: 1981
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navlog:v:28:y:1981:i:2:p:267-279

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