The Economic Order Quantity Model for Exponentially Deteriorating Items with Planned Backorders

Abstract

The basic Economic Order Quantity (EOQ) model is appropriate in a wide range of real world situations but it doesn’t account for spoilage, depletion or deterioration that happens to perishable products in the inventory. Exponential deterioration or decay is the case when a constant fraction of the inventory is lost due to deterioration at any given time, which results in a negative exponential inventory level function and consequently, an exact closed form solution is not possible. Previously, an approximate model based on Taylor series expansion of the exponential function has been proposed and the optimal order quantity equation has been derived. We extend this model to planned backorders and compare our model against an existing model that uses a different approximation and show that our model is superior compared to the earlier one.