Optimal order quantity for imperfect quality items

Abstract

The classic economic order quantity (EOQ) model assumes that all items received from a supplier are of perfect quality. This paper considers an inventory situation where some of the items received are of imperfect quality but not defective. The imperfect quality items are sold at a discounted price and the demands for both perfect and imperfect quality items are continuous during the inventory cycle. The EOQ formulae are extended by accounting for imperfect quality items. The mathematical model is developed and a numerical example illustrating the determination of the optimal policy is provided