A note on "Khouja and Park, optimal lot sizing under continuous decrease, Omega 31 (2003)"
AbstractKhouja and Park (Omega 31, 539-545, 2003) analyze the problem of optimizingthe lot size under continuous price decrease. They show that theclassic EOQ formula can lead to far from optimal solutions anddevelop an alternative lot size formula using the software packageMathematica. This formula is more exact, but also morecomplicated. In this note, we study the net present valueformulation of the model, and thereby gain an insight that leadsto the proposal of a modified EOQ formula. In an extensivenumerical experiment, we show that it leads to nearly optimalsolutions. It is therefore a good alternative to the formuladeveloped by Khouja and Park, especially if mathematicalcomplexity may hamper implementation.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2004-04.
Date of creation: 09 Mar 2004
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economic order quantity; lot-sizing; price decrease;
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