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Optimal substitution strategies for inventory management: a novel simplified EOQ based model with shortages

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  • Saurabh Kumar Mishra

    (Madan Mohan Malaviya University of Technology)

  • Vinod Kumar Mishra

    (Madan Mohan Malaviya University of Technology)

Abstract

This research article presents an enhanced Economic Order Quantity (EOQ) type inventory model of two products with demand substitution. The model is designed for scenarios involving two substitute products characterized by distinct demand rates but identical cost structures considering shortages. This model accounts for deterministic and constant demand rates and operates under an independent replenishment policy. In the existing literature, the most of the researcher conclude that full substitution can never be optimal and derived conditions for the optimality of either no or partial substitution. This study determines the policy that leads to new insights that full substitution can be also optimal. Moreover, if partial substitution is optimal, it is always one-way substitution. To demonstrate the effectiveness of proposed model, a numerical experiment which has carried out, the result shows that when partial substitution, no substitution, and full substitution may be optimal. Furthermore, the sensitivity analysis has been conducted by varying as much as parameter individually to assess its impact on the optimal policy.

Suggested Citation

  • Saurabh Kumar Mishra & Vinod Kumar Mishra, 2025. "Optimal substitution strategies for inventory management: a novel simplified EOQ based model with shortages," OPSEARCH, Springer;Operational Research Society of India, vol. 62(2), pages 905-925, June.
    • Handle: RePEc:spr:opsear:v:62:y:2025:i:2:d:10.1007_s12597-024-00818-5
    DOI: 10.1007/s12597-024-00818-5
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    References listed on IDEAS

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    1. Ravi Anupindi & Maqbool Dada & Sachin Gupta, 1998. "Estimation of Consumer Demand with Stock-Out Based Substitution: An Application to Vending Machine Products," Marketing Science, INFORMS, vol. 17(4), pages 406-423.
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    3. Kim, Sang-Won & Bell, Peter C., 2011. "Optimal pricing and production decisions in the presence of symmetrical and asymmetrical substitution," Omega, Elsevier, vol. 39(5), pages 528-538, October.
    4. Chaman Singh & Gurudatt Rao Ambedkar, 2023. "Optimizing EOQ model for expiring items with stock, selling cost and lifetime dependent demand under inflation," OPSEARCH, Springer;Operational Research Society of India, vol. 60(1), pages 174-187, March.
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    6. Teunter, Ruud H. & Kuipers, Stefan, 2022. "Inventory control with demand substitution: new insights from a two-product Economic Order Quantity analysis," Omega, Elsevier, vol. 113(C).
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