A note on "Khouja and Park, optimal lot sizing under continuous decrease, Omega 31 (2003)"

Ruud Teunter

No EI 2004-04, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Khouja and Park (Omega 31, 539-545, 2003) analyze the problem of optimizing the lot size under continuous price decrease. They show that the classic EOQ formula can lead to far from optimal solutions and develop an alternative lot size formula using the software package Mathematica. This formula is more exact, but also more complicated. In this note, we study the net present value formulation of the model, and thereby gain an insight that leads to the proposal of a modified EOQ formula. In an extensive numerical experiment, we show that it leads to nearly optimal solutions. It is therefore a good alternative to the formula developed by Khouja and Park, especially if mathematical complexity may hamper implementation.

Keywords: economic order quantity; lot-sizing; price decrease (search for similar items in EconPapers)
Date: 2004-03-09
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