Title

An alternative approach to computing economic run quantity

Document Type

Journal article

Source Publication

International Journal of Production Research

Publication Date

2-2008

Volume

46

Issue

3

First Page

837

Last Page

847

Publisher

Taylor & Francis

Keywords

Inventory, Economic run quantity (ERQ), Profit maximization

Abstract

Our primary objective is to consider an alternative approach to computing an economic run quantity (ERQ) based on profit maximization. We first develop a general profit function for a firm that includes both production and inventory costs. We then use classical optimization techniques to establish an annual production level that will maximize profit, and use this value to determine an economic run quantity. In comparison to a standard textbook example, our approach leads to a substantial increase in profit. It is also robust over a range of values for production variables. This procedure is a break from the traditional cost minimization approach and may present a more logical methodology for the teaching of inventory management techniques.

DOI

10.1080/00207540600902270

Print ISSN

00207543

E-ISSN

1366588X

Publisher Statement

Copyright © 2008 Taylor & Francis. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Simmons, D. & Cheng, J. (2008). An alternative approach to computing economic run quantity. International Journal of Production Research, 46(3), 837-847. doi: 10.1080/00207540600902270