EOQ Model with Controllable Lead Time, Setup Cost and Backordering Rate

Abstract

This paper developed an EOQ model, in which the demand follows a general distribution, under the assumption that lead time can be shortened and setup cost can be reduced by added investment, and backorder rate depends on inventory level and price discount in the period of shortage. We proved the existence and uniqueness of optimal solution and proposed an algorithm searching for it. We find that order quantity, safety stock and inventory total cost can be normally reduced by shortening lead time and reducing setup cost, furthermore, backordering parameter and probability of shortage have a great impact on inventory total cost, so an enterprise should do its best to reduce probability of shortage, especially when backordering parameter is small.