Economic order quantity with uncertain inflation: A case study

The basic Economic Order Quantity (EOQ) model and its variations have been discussed in the literature for decades. One of these variations is to take inflation into account in the basic EOQ model. Recently, Horowitz (IJPE 65, 217-224, 2000) proposed an inflation-modified EOQ model. In this paper, We apply the model proposed by Horowitz to a real application; ordering a certain brand of tea in a supermarket chain. Currently, replenishment policies of the application are based on intuition rather than on analytical models. We show that if EOQ model is applied rather than intuition, an improvement of 8% is possible. Moreover, if the model proposed by Horowitz, which takes uncertain inflation into account, is applied, then an average improvement of 22% is possible. Significance: In this paper, we apply the economic order quantity model with uncertain inflation to a real life problem where significant contributions are obtained.