A Modified EOQ Model using Purchase Dependency and Partial Backordering

Opportunity cost, which can be defined as the loss in profit faced by a firm in case of stock out condition, plays an important role while calculating the EOQ of an item. However, if the items are correlated and their sales/non sales are dependent on each other than the total loss faced by the firm in case of stock out is the sum of item's individual profit and its influence on other item's sales. In this paper, opportunity cost of an item is modified by taking purchase dependency into account. This modified opportunity cost is then used to estimate the EOQ of an item. Experimental results show that when purchase dependency is taken into account, the EOQ of an item will be affected resulting in modified profit of the firm.