Impact of Variable Ordering Cost and Promotional Effort Cost in Deteriorated Economic Order Quantity (EOQ) Model

The instantaneous economic order quantity (EOQ) profit optimization model for deteriorating items is introduced for analyzing the impact of variable ordering cost and promotional effort cost for leveraging profit margins in finite planning horizons. The objective of this model is to maximize the net profit so as to determine the order quantity and promotional effort factor. For any given number of replenishment cycles the existence of a unique optimal replenishment schedule are proved and further the concavity of the net profit function of the inventory system in the number of replenishments is established. The numerical analysis shows that an appropriate policy can benefit the retailer, especially for deteriorating items. Finally, sensitivity analyses with respect to the major parameters are also studied to draw managerial decisions in production systems.