EOQ Model

International Journal of Industrial Engineering Research and Development (IJIERD), ISSN 0976 INTERNATIONAL JOURNAL OF INDUSTRIAL ENGINEERING 6979(Print),
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EOQ MODEL FOR PLANNED SHORTAGES BY USING EQUIVALENT HOLDING AND SHORTAGE COST
Prof. Bhausaheb R. Kharde Amrutvahini Engineering College, Sangamner Pune University, Maharashtra, India 422608 khardebr@yahoo.com Dr. Gahininath J. Vikhe Patil Amrutvahini Engineering College, Sangamner Pune University, Maharashtra, India 422608 gjvploni@yahoo.co.in Dr. Keshav N. Nandurkar KKW College of Engineering, Nasik Pune University, Maharashtra, India 422002 keshav1965@gmail.com Abstract In this manuscript, we propose the concept of Equivalent of Holding and shortage cost (EHSC). The EHSC is the effective holding cost due to holding the items in stock and also the cost of shortage when items are not in stock (back-ordered or planned shortages). We demonstrate Economic Order Quantity with Backordering (EOQB) model simplifies to the level of Economic Order Quantity (EOQ) model (in terms of formulae and difficulty-level) by use of new Factor for Back-ordering or Factor for Planned Shortages. We derive that the product of factor for backordering and holding cost is the Equivalent Holding and shortage cost for EOQB model. This factor magically simplifies EOQB model. Index Terms EOQ, back-ordering, Shortage cost, equivalent holding cost and shortage cost 1 INTRODUCTION Economic Order Quantity for Planned Shortages (EOQB) model is illustrated in very few text books (Anderson, 2009; Gupta, 2008; Narsimhan, 2010; Pannerselvam, 2009; Sharma, 2010; and Vora, 2011) due to its complexity. In literature, few authors use term "back ordering" while 43
International Journal of Industrial Engineering Research and Development (IJIERD), ISSN 0976 6979(Print), ISSN 0976 6987(Online) Volume 3, Issue 1, January - June (2012), IAEME
many authors prefer "planned shortages" to describe this model. Both terms carry the meaning but back ordering is more preferable as it deal with the cost of back ordering. Hence in this paper back-ordering i.e. 'b' is used for subscript. For the model, replenishment is done at a point when stock reaches maximum planned shortages (negative inventory). Vora (2011) have given the assumptions. Gupta, Hira (2008) explains almost all the model including EOQB. Some authors prefer the term carrying cost (Sharma, 2010) while many authors use holding cost (Anderson, 2009; Pannerselvam, 2009; Vora, 2011). Holding cost is more meaningful in inventory model context and hence should be preferred. Inventory is waste; and should be minimized, as it could not be eliminated. So Inventory models have significant applications. Inventory models: Four basic models are used: 1) EOQ, 2) ELS or EPQ, 3) EOQ with planned shortages (EOQB) and 4) ELS with planned shortages (ELSB). The objective is to minimize the total inventory cost wherever applicable.. However last three models are more complex, requires very complicated formulae; and are not included in many texts. This is all do to complicated derivations and complex formulae involved in these two models. Equivalent holding cost really simplifies the traditional inventory models (Kharde, Vikhe Patil; 2011a, 2011b). We develop the concept of Equivalent Holding Cost (EHSC) for EOQB in this manuscript. As a result, inventory model are very much simplified by usage of Equivalent Holding Cost (EHSC) and surprisingly complex models have been now very simple to use and practice! It is just similar to using EOQ formulae. The manuscript is organized as given below. Notation is noted in the Section 2. The literature survey is presented in Section 3. Section 4, illustrates EOQB model with basic formulae. We introduce new research: factor for back ordering or planned shortages in Section 5. Our new concept of equivalent holding cost is derived in Section 6. Section 7, brings out the new formulae with derivation for EOQB model. At the end of this section, comparative formulae of model are noted. This gives an idea how our work have simplified the EOQB model. We explain working of one problem and derivation of classical EOQB model formulae conversion in Section 8. The conclusions are given in Section 9 and bibliography in Section 10. 2 NOTATION Notation The order quantity; Units Economic Order Quantity (EOQ) ; Units Ordering cost per order; $ per order Holding Cost/unit/year; or Carrying cost /unit/year; $ per unit per year Shortage Cost/unit/year; or back-ordering cost /unit/year; $ per unit per year Total annual inventory cost; $ per year Total annual ordering cost; $ per year Total annual holding cost;$ per year Total annual shortage cost or back-ordering cost; $ per year Uniform demand rate; units per unit time Period for positive inventory Period for negative inventory
Q Q* O H B T(Q) O(Q) H(Q) B(Q) d tp tp
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T N LT R Kb EHSC Heb M S D 3
cycle time; or time between two consecutive orders Number of cycles per year Lead time Re-order-level Factor for equivalent holding cost for back-ordering; = B/(H+B) Equivalent Holding and Shortage Cost when Back-orders are permitted Equivalent Holding Cost when Back-orders are permitted; $ per unit per year Maximum Inventory level; Units Maximum Shortage level or Maximum back-ordered quantity; Units Total annual demand; units per year
REVIEW OF LITERATURE
Although Wee et. al. (2007) recently contributed an optimal inventory model for items with imperfect quality and shortage backordering; Canag and Ho (2010) revisit their study and apply the well-known renewal-reward theorem to obtain a new expected net profit per unit time. Maddah et. al. (2010) develop an EOQ-type model with unreliable supply and imperfect quality items; and show that this improvement in service level comes at a modest cost. Roy et al. (2010) develop an inventory model of a volume flexible manufacturing system for a deteriorating item with randomly distributed shelf life, continuous time-varying demand, and shortages over a finite time horizon. It is assumed that the produced units deteriorate over time with uncertainty. Wee (1995) considers a replenishment policy of deteriorating product where demand declines exponentially over a fixed time horizon for partial backordering. Pal et. al. (2008) consider the problem of determining the lot size of a single deteriorating item with the demand rate dependent on displayed stock level, selling price of an item and frequency of advertisement in the popular electronic and print media. Perishable products constitute a sizable component of inventories. Similarly, when a product is highly perishable, the demand may need to be backlogged to avoid costs due to deterioration, i.e., perishability and backlogging are complementary conditions. Abad (2003) considers the pricing and lot sizing problem for a perishable good under finite production, exponential decay and partial backordering and lost sale. Researchers considered that inventory accumulates at the early stage of the inventory and then shortage occurs. This type of inventory is called IFS (inventory followed by shortage) policy. Ghosh et al. (2011) prove numerically that instead of taking IFS, SFI (shortage followed by inventory) policy, they get better result Backordering rate is one of the key parameter in EOQB. As the implementation of JIT practice becomes increasingly popular, each echelon in a supply chain tends to carry fewer inventories, and thus the whole supply chain is made more vulnerable to lost sales and/or backorders (Hu et. al. 2009). Toews et al. (2011) extend those models to allow , back-ordering rate to increase linearly as the time until delivery decreases. Zhang, Xiao (2011b) propose a joint replenishment problem (JRP) model with complete backordering and correlated demand and develop a heuristic algorithm by adjusting the replenishment frequencies of minor items to solve the model Significant work is done in quality discount. Wee (1999) study a deterministic inventory model with quantity discount, pricing and partial backordering when the product in stock deteriorates 45
with time. Zhang et. al. (2011a) address a two-item inventory system where the demand of a minor item is correlated to that of a major item because of cross-selling and present a two-item EOQ model with identical order cycles and partially backordered with lost sales. Inflation is another area for research. Thangam, Uthayakumar (2008) consider a two-level supply chain with a number of identical, independent retailers at the lower echelon and a single supplier at the upper echelon controlled by continuous review inventory policy (R, Q) and develop an approximate cost function to find optimal reorder points for given batch sizes. Yang et. al. (2010) consider an inventory lot-size model under inflation for deteriorating items with stock-dependent consumption rate when shortages are partial backlogging. The proposed model allows for (1) partial backlogging, (2) time-varying replenishment cycles, and (3) timevarying shortage intervals Simulation is important technique. Yang et. al. (2008) explore the production inventory models with a mixture of partial backordering and lost sales for deteriorated items. Li, Chen (2010) develop a simulation model for an inventory system and investigate the impacts of supply disruptions and customer differentiation on this inventory system. Li, Zhang (2008) study the uncertainties and randomness of defective percentage and shortages for the inventory model in the fuzzy environment. Genetic Algorithms are preferred for multimodal functions. Pasandideh et. al. (2010) consider a multi-product economic production quantity NLIP problem with limited warehouse-space and propose a genetic algorithm to solve it. Teng et. al. (2011) study a two-echelon inventory system with returns and shortage backordering. Many researchers derive the EOQB model without derivatives, and they predict that their method could be introduced to younger students in school without the knowledge of calculus. However, their algebraic procedure is too sophisticated to be absorbed by ordinary readers (Ronald et. al. 2004). They apply basic algebraic skill to derive the optimal solution for EOQ and EPQ models with shortages and complete backlogging. Multi-stage supply chain management integration provides a key to successful international business operations. This is because the integrated approach improves the global system performance and cost efficiency. The integrated production inventory models using differential calculus to solve the multi-variable problems are prevalent in operational research (Chung et. al. 2007). They present model of the integrated vendorbuyer system derived without derivatives, using a simple algebraic method. Hsieh, Dye (2011) solve EOQ with partial backordering model without differential calculus and present a different decision procedure. Many parameters are stochastic in nature for EOBQ. Gk et. al. (1988) present some findings on joint replenishment of items with stochastic demand and backordering for a specific problem of stock control of the spare parts in a petroleum company where demand is stochastic. San Jos et. al. (2006) study an inventory model with partial backlogging, where unsatisfied demand is partially backlogged according to an exponential function. In Xu et al. (2010) consider the stock rationing problem of a single-item make-to-stock with multiple demand classes. Demand arrives as a Poisson process with a randomly distributed batch size. Teunter, Dekker (2008) analyze the EOQB, where the inventory position is controlled by an order level, order quantity policy and Order lead times may be stochastic. Teunter, Haneveld (2008) study inventory systems with two demand classes (critical and non-critical): Poisson demand and backordering. Huang et. al. (2011) investigate the inventory system of an online retailer with compound
46
Poisson demand. The retailer normally replenishes its inventory according to a continuous review (nQ, R) policy with a constant lead time. Notable work is observed in partial backordering. The backlogging phenomenon is modeled without using the backorder cost and the lost sale cost since these costs are not easy to estimate in practice (Abad, 2001). San-Jos et. al. (2007) study a continuous review inventory control system over a infinite-horizon with deterministic demand where shortage is partially backlogged. Abad (2008) provide an iterative procedure for solving EOQB for lost sales cost. Pentico, Drake (2009) take a different approach to modeling the deterministic EOQ with partial backordering that results in equations that are more like the comparable equations for the basic EOQ and its full-backordering extension. In this survey Pentico, Drake (2011) review deterministic models that have been developed over the past 40 years that address extensions such as pricing, perishable or deteriorating inventory, time-varying or stock-dependent demand, quantity discounts, or multiple-warehouses. Several authors have developed models for the EOQ when only a percentage of stock outs will be backordered. Most of these models are complicated, with equations unlike those for the EOQ with full backordering (Pentico et. al. 2009). We observe that no work is done on the equivalent holding cost so far which we present here. 4 ECONOMIC ORDER QUANTITY MODEL FOR PLANNED SHORTAGES (EOQB) Certain assumptions are made in this model like Wilson's formulation in Vora [9] 1. The demand for the item is certain, constant and continuous Maximum Inventory I 2. Lead time is fixed n 3. Holding cost (H) per unit per unit time is v d Q e constant and does not change for different order n quantity t o 4. Ordering cost(O) per order is constant and does Time O r not vary with number of orders y 5. Purchase price of the item is constant and does Maximum Shortage t not change within the period of planning. No t L T discount is applicable 6. The replenishment for order quantity is done when shortage level reaches planned shortage level Figure 1: EOQB model in one lot 7. Stock outs are permitted and shortage or backordering cost per unit is known and is constant.
2 1
Replenishment is done in one lot when negative inventory or shortage level reaches maximum shortage level (Figure 1) When order is replenished, back order quantity or shortage quantity is supplied and inventory level shoots to "M'. The usage start at rate of 'd' units per day and reduces gradually from 'M' to zero in period 't1'. Afterwards inventory shortages go on increasing to 'S' in period 't2'. In this period, shortages are permitted and these shortages will be replenished when next order is replenished. Due to this arrangement, this model is called as "EOQ with Planned shortage model " or' "EOQ with back-ordering (EOQB)".
47
4.1. Holding Cost During period 't1' inventory use up rate is 'd'
= , = Q S = (d)(t1) Average Inventory during t1 = (d)(t1)/2 = (Q-S)/2 = D/Q From Figure 1: = . ; = . ; = . ; . = = . ( ) = = = 1 ; =1
4.2. Holding cost during a cycle H(Q) = (Average inventory) * (Inventory Holding Cost per unit for t1 time) ( )= [ ] 2 Here H is holding cost per year, while holding period is only t1 4.3. Annual Holding Cost ( )=( 2 ( ) )/( ( ) 2 )= 2
(1)
[ ]
4.4. Shortage Cost During period 't2' shortage up rate is 'd' = . ; = . ;
( ) 2
From Figure 1:
, = = +
, = . = and ; =
. .
= = ; = )=
( )=( )( / Here 'B' is shortage cost per unit for 1 year, while holding period is only t2 4.5 Annual Shortage Cost ( )=( 4.6. Ordering Cost Orders per year; N = )( ) = ( )( ) = ( )( )( ) = =
4.4.2 Shortage cost during a cycle
48
Annual Ordering cost ( )=( )( )= =
4.7 Primary condition for optimum We now deduced the condition for optimum. It is the equation for optimum shortage quantity and optimum order quantity. The cost of items is also included in Total cost associated for inventory. But it has no effect on optimum quantity and hence not taken here (Price per unit * D) To minimize the Total cost, partial derivatives with the variables Q and S should be zero. Taking first derivative with respect to S and equate it to zero: ( ) ( ) . = ( + + ) 2 2 2( ) (2 ) = 0 + 2 2 Equating to zero: ( ) ( ) 2( ) (2 ) 0 = 0 + = + = + 2 2 0 = ( ) + = + + = + = ( + ) ( + ) = = (1) and
( )= ( )+ ( )+ ( )
This is the optimum condition for S. Hence S is replaces by optimum S* in this equation. We have Equation (1) and (2). The RHS term is a clue to define a new Factor for back ordering or shortage, Kb 5 FACTOR FOR BACK-ORDERING OR SHORTAGE (KB) Defining Kb: =
(2)
(3) + Factor depends on H and B. It is a dimensionless constant for given EOQB model. Subtracting LHS and RHS from 1; 1 1 = 1 = + = (1 + = ) =
From equation (2) and (4),
(4)
Simplifying,
(5)
49
= (6) So with Kb, M* and S* can be calculated from Q*. There is no need to use complex equations for M* and S*. 6 EQUIVALENT HOLDING AND SHORTAGE COST (EHSC) We take the Total annual holding and annual shortage costs and deduce the equation for EHSC. ( ) ( )+ ( )= + 2 2 Substituting for S from equation (5) (1 ) ( (1 ) ) = + 2 2 (1 ) (1 (1 )) = + 2 2 [ + (1 ) 2 Putting Kb and (1- Kb) in term of H and B, from (3) and (4) = = 2 = 2 [(1 (1 )) ] + (1 )
( ) (7) 2 Observe RHS of equation (7). It is annual holding and shortage cost for EOQB model under consideration here. It is also very similar to annual holding cost of EOQ model. Difference is just factor for back ordering or shortage. For EOQ model, Annual holding cost: ( ) 2 EOQ model do not have shortage cost. So we define by analogy Equivalent Holding Cost (EHSC) for EOQB model. EHSC for EOQB model is the product of holding cost and factor for back ordering. Heb notes Equivalent Holding Cost (EHSC) for EOQB model. This is equation (8): = (8) Heb is cost; which is having combined cost effect of holding and shortage cost. From (7) and (8), we get equation (9): ( )+ ( )= 2 ( ) (9) ( )=
+ ( + )
( )+ ( )=
[( ) + ( ) ] 2 + + ( + ) = = ( + ) 2 + 2
50
7 EOQB MODEL DERIVATION WITH EHSC (HEB) We derive now EOQB in terms of factor for back ordering (Kb) and equivalent holding cost (EHSC) From 3,4 and (9) 7.1. Total annual inventory cost for EOQB model: ( )= ( )+ ( )+ ( ) = ( )+
.
In order to minimize the annual total cost, the partial derivative of Total cost, T(Q) w.r.t. Q should be Zero. ( ) . . ( )+ = = + (1) 2 2 . + (1) =0 2 . = 2 2 . = =[ 2 . ]
.
(10)
This value is optimal, but to confirm for global minimum, second derivative must be positive, ( ) . . = [ + (1) ] = 0 + (1)(2) 2 ( ) 2 . = As all quantities on RHS are positive (O, D and Q); RHS is greater than zero LHS = 2 (D)( O/Q3 ) > 0 Hence the quantity (Q) found is the minimum cost point optimum quantity; denoting it as Q* For EOQB model: 2 . =[ ] . (11) Comparing this with traditional EOQ model
Only use EHSC instead of holding cost and formula remains unchanged. Literature derives this formula from 3 and 4. Complex formula simplifies to this formula only (refer Section 8). 7.2. Total Optimum Annual Inventory cost (
)
=[
2 .
2 Putting value of Q* in terms of D, O and Heq and simplifying . ( )+ = 2 51
+ (
+ (
)+
=( =
2 .
1 1 ( . ) . + . ( . . 2 2 =( . ) . (2 . ) = (2 . 7.3. Annual Holding Cost ( ) ( ) = = 2 2 2 7.4. Annual Shortage Cost (

)
2 .
)
.
=( .
(12) 2
1 1 + . ) . 2 2 [ ]
(13)
]=
( )
[ ] =
[1
]=
[1
] =
(14)
7.5 EOQB Model Formulae So most of the formulae for EOQB model(Table 1) are like EOQ model with use of Heb
Table 1: EOQB model Formulae 1 Kb = B/(H + B) 2 Heb = (Kb )(H ) 3 Q* = [ 2(D)(O)/ Heb ]0.5 4 S* = (1 - Kb) Q* 5 M* = Kb Q* 6 T(Q*) = [2(D)(O)( Heb)] 0.5 7 H(Q*) = (M/2) Heb 8 B(Q*) = (S/2) Heb 9 O(Q*) = (D)(O)/Q 10 t1 = M*/d 11 t2 = S*/d 12 T = Q*/d 13 N = 1/ T = D/Q
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7.6. Formulae Comparison Table 2 shows Formulae comparison for the classical EOQ, classical EOQB and EOQB as proposed in this paper. Table 2 - Formulae Comparison
Item Kb Heb Q* S* M* T(Q*) H(Q*) B(Q*) O(Q*) t1 t2 T N [2 . EOQ (Classical) 2 . [ ] 2

EOQB (Classical- Vora [7]) 2 . [ ]
EOQB with EHSC as proposed in this paper + = 2 . [ ] . (1
H
.
+
.
[2 .
+ ( ) 2 2 .

[2 .
8 ILLUSTRATION Test problem is taken from (9.19: Vora, 2011) 1 2 3 4 5 6 D O IH Cu IB WD 10,000 10 20% 20 25% 300 units Rs per order of inventory value Rs per unit of inventory value work days in year
Here % rate is given. Need to calculate H & B
1. Holding Cost H = (Cu)( IH) = (20)(.2) = 4 Rs per unit per year 2. Shortage cost B = (Cu)( IB) = (20)(.25) = 5 Rs per unit per year 3. Factor for shortage for EOQB Kb = B/(H + B) = 5 / (4 + 5) = 0.555556 4. Equivalent Holding and Shortage Cost Heb = (Kb )(H ) = (0.555556)(4) =.22222 Rs/unit/year 5. Economic Order Quantity Q* = [ 2(D)(O)/ Heb ]0.5 = [2(10,000)(10)/ 2.2222] 0.5 = 300 units per order 6. Optimal Back-ordered quantity or Optimal maximum shortages S* = (1 - Kb) Q* = (1 - 0.555556)(300) = 133.33 = 133 units per order 7. Optimum Maximum Inventory Level M* = (Kb) Q* = (0.555556)(300) = 167 units per order 8. Total Optimum Annual Inventory cost T(Q*)= [2(D)(O)( Heb)] 0.5 = [2(10,000)(10)(2.2222)] 0.5 = 666.67 Rs /year 9. Optimum annual holding cost H(Q*) = (M*/2) Heb = (167/2)(2.222222) = 185.19 Rs per year 10. Optimum annual shortage cost B(Q*) = (S/2) Heb = (133/2)(2.222222) = 147.78 Rs per year 11. Optimum annual ordering cost O(Q*) = (D)(O)/Q* = (10,000)(10)/300 = 333.33 Rs per year 12. Demand per day d = D/WD = 10,000/300 = 33.3333 units/day 13. Time for positive inventory, in a cycle t1 = M*/d = 167/ 33.33333 = 5 days 14. Time for shortages, in a cycle t2 = S*/d = 133/ 33.33333 = 4 days 15. Cycle time T = Q*/d = 300/ 33.33333 = 9 days Also it is equal to t1 + t2 The formulae for EOQB; proposed in this paper gives all correct answers. Hence, correctness of the formulae is verified. 9 CONCLUSIONS We introduce "Factor for Equivalent Holding cost, for planned shortages or Back-ordering (Kb) and it is very simple to calculate. We also introduce the Equivalent Holding cost, (EHSC) for EOQB model in this paper; which can be calculated from factor (Kb) very easily. The concept of EHSC has simplified the EOQB model to the level of EOQ model. All formulae of EOQ model can be used for EOQB model with "Heb' in place of 'H'. The complex formulae of classical EOQB model are obsolete now. We had done similar works for "simplifying Economic Lot size (ELS) model" (Kharde, Vikhe Patil, 2011a) and "simplifying Economic Lot Size for planned shortages (ELSB)(Kharde,
Vikhe Patil, 2011b)". Hence with EHSC three models have been simplified to the level of EOQ model. No new formulae for each model but only EOQ model formulae for these three models are required to be used. 10 REFERENCES [1] Abad P., (2001), Optimal price and order size for a reseller under partial backordering, Computers & Operations Research, Volume 28, Issue 1, January 2001, Pages 53-65 [2] Abad P., (2003), Optimal pricing and lot-sizing under conditions of perishability, finite production and partial backordering and lost sale, European Journal of Operational Research, Volume 144, Issue 3, 1 February 2003, Pages 677-685 [3] Abad P., (2008), Optimal price and order size under partial backordering incorporating shortage, backorder and lost sale costs , International Journal of Production Economics, Volume 114, Issue 1, July 2008, Pages 179-186 [4] Anderson, Sweeney and Williams *(2009), Inventory models, Quantitative Methods for business, 1st ed. Kundali, India, Thompson Southwest, 135-185 [5] Chang H., C. Ho (2010), Exact closed-form solutions for optimal inventory model for items with imperfect quality and shortage backordering , Omega, Volume 38, Issues 3-4, June-August 2010, Pages 233-237 [6] Chun Jen Chung, Hui Ming Wee (2007), Optimizing the economic lot size of a three-stage supply chain with backordering derived without derivatives , European Journal of Operational Research, Volume 183, Issue 2, 1 December 2007, Pages 933-943 [7] Ghosh S., S. Khanra, and K. Chaudhuri (2011), Optimal price and lot size determination for a perishable product under conditions of finite production, partial backordering and lost sale , Applied Mathematics and Computation, Volume 217, Issue 13, 1 March 2011, Pages 6047-6053 [8] Gupta, P.K., Hira D.S. (2008), Inventory models, Operations Research, New Delhi, India; S. Chand, 1011-1097 [9] Narsimhan, S.L., McLeavy, D.W. and Billington, P.J., (2010), Basic inventory system. Production planning and inventory control, New Delhi, India, Prentice-Hall, 91-111 [10] Gk Y., A. Satir, S. Goyal (1988), Some findings on joint replenishment of items with stochastic demand and backordering, Engineering Costs and Production Economics, Volume 13, Issue 2, January 1988, Pages 125-133 [11] Hsieh T., and C. Dye (2011), A note on The EPQ with partial backordering and phasedependent backordering rate , Omega, In Press, Corrected Proof, Available online 25 March 2011 [12] Huang S., S. Axster, Y. Dou, and J. Chen (2011), A Real-time Decision Rule for an Inventory System with Committed Service Time and Emergency Orders, European Journal of Operational Research, In Press, Accepted Manuscript, Available online 25 May 2011 [13] Hu W., S. Kim, and A. Banerjee (2009), An inventory model with partial backordering and unit backorder cost linearly increasing with the waiting time, European Journal of Operational Research, Volume 197, Issue 2, 1 September 2009, Pages 581-587 [14] Kharde B., G. Vikhe Patil and K. Nandurkar (2011a), Simplification of Economic Lot Size Model by using Equivalent Holding Cost, Proceedings of International Conference on Advances in Mechanical Engineering (ICAME 2011), SVNIT, Surat, 17-19 November 2011 [15] Kharde B., G. Vikhe Patil and K.N. Nandurkar (2011b), Simplification of Economic Lot Size Model for Planned Shortages by using Equivalent Holding Cost, Proceedings of
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EOQ Model

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International Journal of Industrial Engineering Research and Development (IJIERD), ISSN 0976 INTERNATIONAL JOURNAL OF INDUSTRIAL ENGINEERING 6979(Print),

Q Q* O H B T(Q) O(Q) H(Q) B(Q) d tp tp

= , = Q S = (d)(t1) Average Inventory during t1 = (d)(t1)/2 = (Q-S)/2 = D/Q From Figure 1: = . ; = . ; = . ; . = = . ( ) = = = 1 ; =1

4.4. Shortage Cost During period 't2' shortage up rate is 'd' = . ; = . ;

4.4.2 Shortage cost during a cycle

Annual Ordering cost ( )=( )( )= =

From equation (2) and (4),

2 Putting value of Q* in terms of D, O and Heq and simplifying . ( )+ = 2 51

1 1 ( . ) . + . ( . . 2 2 =( . ) . (2 . ) = (2 . 7.3. Annual Holding Cost ( ) ( ) = = 2 2 2 7.4. Annual Shortage Cost (

EOQB (Classical- Vora [7]) 2 . [ ]

EOQB with EHSC as proposed in this paper + = 2 . [ ] . (1

Here % rate is given. Need to calculate H & B

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