Khouja and Park (Omega 31, 539-545, 2003) analyze the problem of optimizing the lot size under continuous price decrease. They show that the classic EOQ formula can lead to far from optimal solutions and develop an alternative lot size formula using the software package Mathematica. This formula is more exact, but also more complicated. In this note, we study the net present value formulation of the model, and thereby gain an insight that leads to the proposal of a modified EOQ formula. In an extensive numerical experiment, we show that it leads to nearly optimal solutions. It is therefore a good alternative to the formula developed by Khouja and Park, especially if mathematical complexity may hamper implementation.

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Keywords economic order quantity, lot-sizing, price decrease
Persistent URL hdl.handle.net/1765/1184
Citation
Teunter, R.H.. (2004). A note on "Khouja and Park, optimal lot sizing under continuous decrease, Omega 31 (2003)" (No. EI 2004-04). Report / Econometric Institute, Erasmus University Rotterdam. Retrieved from http://hdl.handle.net/1765/1184