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Article
An alternative approach to computing economic run quantity
International Journal of Production Research
  • D SIMMONS, Ithaca College
  • Joseph CHENG, Ithaca College
Document Type
Journal article
Publication Date
2-1-2008
Publisher
Taylor & Francis
Keywords
  • Inventory,
  • Economic run quantity (ERQ),
  • Profit maximization
Disciplines
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
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
Citation Information
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