The stochastic EOQ model with random sales price

The stochastic EOQ model with random sales price

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Article ID: iaor20117440
Volume: 218
Issue: 2
Start Page Number: 239
End Page Number: 248
Publication Date: Sep 2011
Journal: Applied Mathematics and Computation
Authors:
Keywords: inventory: order policies, stochastic processes, demand
Abstract:

The article deals with a stochastic economic order quantity (EOQ) model over a finite time horizon where uniform demand over the replenishment period is price dependent. The selling price is assumed to be a random variable that follows a probability density function. As demand is probabilistic, stock out situation may occur. Based on the partial backlogging and lost sale cases during stock out period, the author develops the criterion for the optimal solution for the replenishment size such that the integrated expected profit is maximized. Moreover, the article suggests a new function regarding price dependent demand. Finally, numerical examples and its sensitivity analysis of key parameters are given to illustrate the proposed model.

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