Economic order quantity with deviation in the order received -

Abstract

The fundamental assumption of an economic order quantity (EOQ) model is, by definition, that 100percent of items in an ordered lot are received. This thesis extends the traditional EOQ model by accounting for order deviation, characterized by a random fraction of items deviating from the ordered amount. This random deviation can lead to over-ordering (receiving more than what is ordered) or under-ordering (the opposite situation). This applies in several industries where “counting” the amount of received items is not possible immediately upon the order receipt, with orders of construction material being a typical example. Simple expressions of the optimal order quantity and the expected cost function per unit time are formulated in this thesis in order to provide accuracy when confronted with this situation in an attempt to reduce the percentage of error. In this study, we discuss sensitivity analysis which shows that optimal order quantity can be smaller or larger than that of the classical EOQ depending on the variability of the order deviation.