An EOQ model with substitutions between products

Zvi Drezner, Haresh Gurnani, Barry A. Pasternack

Research output: Contribution to journalArticle

58 Scopus citations

Abstract

In this paper, we present an economic order quantity (EOQ) model when two products are required, and one can be substituted for the other, if necessary, at a given unit cost. We consider three cases: (i) when there is no substitution between the products, (ii) when there is full substitution between the products, and (iii) when there is partial substitution between the products. In a deterministic setting with proportional substitution costs, we would expect to find full substitution or no substitution being optimal, depending on the cost parameters. However, we observe that full substitution is never optimal; only partial substitution or no substitution may be optimal. This result can best be explained due to the non-linearity of the decision variables in the total cost expression. Finally, we present an algorithm to compute the optimal order quantities.

Original languageEnglish (US)
Pages (from-to)887-891
Number of pages5
JournalJournal of the Operational Research Society
Volume46
Issue number7
DOIs
StatePublished - Jul 1995

Keywords

  • Economic order quantity
  • Inventory
  • Substitutions

ASJC Scopus subject areas

  • Management Information Systems
  • Strategy and Management
  • Management Science and Operations Research
  • Marketing

Fingerprint Dive into the research topics of 'An EOQ model with substitutions between products'. Together they form a unique fingerprint.

  • Cite this