Retailer's optimal ordering policy in the EOQ model with imperfect‐quality items under limited storage capacity and permissible delay

Abstract

With a view to reducing inventory and increase sales, a supplier frequently offers its buyers a permissible delay in payment to attract new retailers for bulk purchase, and so extra storage spaces are needed for the buyers. Moreover, in a real environment, some defective items are produced because not only the production processes but also the inspection processes are not perfect, thereby generating defects then resulting in extra costs. Keeping these facts in mind, this article proposes a profit‐maximizing economic order quantity model that incorporates both imperfect production quality and permissible delay in payments in the case when the own warehouse with limited capacity is not sufficient to store the ordered quantity and, therefore, a rented warehouse is needed to store the excess units over the capacity of the owned warehouse. Mathematical model and solution procedures are developed with major insight into its functional characteristics. Numerical examples and sensitivity analysis are provided to illustrate and analyze the model performances. It is observed that our model has significant impacts on the optimal lot size and the optimal profit of the mathematical model, which is considered in this article.