Economic order quantity model with innovation diffusion criterion having dynamic potential market size

Abstract

Introduction of a new product in the market forces the inventory managers to consider the effects of marketing policies especially for innovation effects at the earlier stage of the product life cycle to make the economic order quantity (EOQ) model more realistic. Traditional EOQ models generally do not consider the effect of marketing parameters. In this paper, a time dependent innovation driven demand model has been introduced in the basic EOQ model to calculate the different optimal policies. This model assumes that potential market size is dynamic over time. The proposed model acknowledges relationship between the innovation coefficient and the optimal policies. The effectiveness of this model is illustrated with a numerical example and sensitivity analysis of the optimal solution with respect to different parameters of the system is performed.