Economic Order Quantity (EOQ) for Perishable Goods with Weibull Distribution and Exponential Demand Rate Proportional to Price

Abstract

Business organizations that deal with consumable and perishable items have consistently incurred enormous loss as a result of the nature of their goods. The losses have direct negative impact on revenues. Unplanned and lack of precise production prediction models are responsible for this. An appropriate prediction model, developed to guide production plan and processes will help manufacturers in deciding which product to make and in what quantity. In this study, the Economic Order Quantity (EOQ) for perishable goods with Weibull lifetime distribution and exponential demand rate proportional to price was developed for perishable goods. The differential equations governing the instantaneous state of inventory in the interval [0, t2] were obtained and solved for the equation of the quantity of inventory at time t. Using fixed parameters for the weibull and exponential distributions, simulation study was conducted on the derived EOQ model using R programming language. The simulation shows that the EOQ increases with increase in Weibull parameter. Real data on six loafs of bread obtained from Afe Babalola University bakery was used to illustrate how the model works. Result shows a good fit to the data and the average EOQ ranges from 60 to 400 loafs with ordering times of either 1 or two days interval. The pattern of EOQ varies between type of loafs of bread. The EOQ model developed is shown by this result to be appropriate for perishable goods with weibull lifetime distribution and exponential demand rate proportional to price.