EOQ under linear inflationary conditions: An optimal solution and the robustness issue

In this work, the authors investigate the issue of variability of the economic order quantity (EOQ) under inflationary conditions. First, using the linear inflation model available in the literature, they show that the EOQ is insensitive to inflation for very long operating horizons provided that the inflation is not applied in the first order cycle. Then, constructing an exact model that duly incorporates inflation in the first cycle, the authors demonstrate that the EOQ is sensitive to inflation no matter what the length of the horizon is. Interestingly, for the exact model, the optimal lot size is larger than the EOQ-without-inflation for problems with infinite horizon. It will be seen that the present analysis here materially changes and/or reverses many of the outstanding conclusions presented in the related literature. Finally, the authors develop a quartic equation that solves for the optimal production and procurement lot size for the exact model, which should serve as an efficient decision support. When the EOQ determined by the exact model is used, they show the present method yields lower cost than a recent previous work, despite the fact that the authors incur an additional inflationary component of cost in the first cycle.