An economic order quantity model for items experiencing failure in storage

In this paper, an economic order quantity model for items which experience failure according to a probabilistic rate during the storage period is developed. Prior research on item failure has primarily focused on items which can be repaired or sold at a discount. Scenarios that assume repair and discounted sales, however, are impractical for systems where repair costs exceed or are equivalent to item costs and imperfect items are unacceptable. Such cases are prevalent in the medical and electronics industries where defective items are largely unusable. The model presented in this paper is applicable to systems with large fixed order costs and lengthy inventory holding periods. The paper first develops an economic order quantity model for the presented framework. Illustrative numerical examples which demonstrate the effects of certain model parameter changes on optimal order quantity and firm profitability are then provided.