ARTICLE IN PRESS

Int. J. Production Economics 92 (2004) 197–200

Technical note: The EOQ and EPQ models with

shortages derived without derivatives
Robert Ronalda, Gino K. Yangb, Peter Chuc,*
a
Operation De-Handicap, Taipei, Taiwan
b
Department of Management Science, Chinese Military Academy, Kaohsiung, Taiwan
c
Department of Traffic Science, Central Police University, Taoyuan 333, Taiwan

Received 1 August 2003; accepted 15 October 2003

Abstract

Grubbstrom. and Erdem (Int. J. Prod. Econom. 59 (1999) 529) derived the EOQ model with shortages and complete
backlogging without derivatives, and they predicted that their method could be introduced to younger students in
school without the knowledge of calculus. However, their algebraic procedure is too sophisticated to be absorbed by
! (Int. J. Prod. Econom. 70 (2001) 289) extended the algebraic method to
ordinary readers. Recently, C!ardenas-Barron
solve the EPQ model with shortages and complete backlogging. We will point out that his method has the same
problem as Grubbstrom. and Erdem’s. In this note, our method applies basic algebraic skill to derive the optimal
solution for EOQ and EPQ models with shortages and complete backlogging.
r 2003 Elsevier B.V. All rights reserved.

Keywords: Inventory; Economic order/production quantity; Shortage

1. Introduction hoped to describe the behavior of the inventory

Good inventory management is often the mark
of a well-run organization. Many scholars have
strived to develop a formulated inventory model in
a more realistic fashion. In recent research,
Papachristos and Skouri (2003) generalized the
work of Wee (1999) in which the demand rate is a
convex decreasing function of the selling price and
the backlogging rate is a time-dependent function.
Chung and Huang (2003) extended the Goyal
(1985) EOQ model to the EPQ model under
conditions of permissible delay in payments. They
*Corresponding author. Fax: +886-3-3282212.
E-mail address: una211@sun4.cpu.edu.tw (P. Chu).
system effectively and establish an optimal order
policy. Harris (1915) stated that the solution for
the EOQ formula required higher mathematics.
Grubbstrom. (1996) showed that the standard
EOQ formula could be derived algebraically with-
out reference to calculus. Grubbstrom. and Erdem
(1999) extended this result to the case of including
backlogging. We take the same notation and
assumptions as Grubbstrom . and Erdem (1999) as
follows:
B maximum backorder level,
b backlog cost per unit and time unit,
D demand rate,
h inventory holding cost per unit and time unit,

0925-5273/$ - see front matter r 2003 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2003.10.013
 ARTICLE IN PRESS

198 R. Ronald et al. / Int. J. Production Economics 92 (2004) 197–200

K ordering cost, satisfy Eq. (4). It may be not a good idea to advise
Q maximum inventory level. younger students to try all possible outcomes to
. and
discover that Eq. (7) is suitable. Grubbstrom
The order quantity is Q þ B and the objective Erdem (1999) tried to find a; b and g with a > 0;
function (average cost per time unit), CðQ; BÞ; is b > 0 and g > 0 such that
expressed as


 D b h
D b 2 h C ðQ; BÞ ¼ ðB  aÞ2 þ ðQ  bÞ2 þg :
CðQ; BÞ ¼ B þ Q2 þ K : ð1Þ B þ Q 2D 2D
B þ Q 2D 2D
ð8Þ
. and Erdem (1999) write K as
Grubbstrom
p ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
h 2DKb b 2DKh If we know that a ¼ B ¼ 2DKh=bðb þ hÞ and
K¼ þ : ð2Þ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2D hðb þ hÞ 2D bðb þ hÞ b ¼ Q ¼ 2DKh=hðb þ hÞ; then
They plug Eq. (2) into Eq. (1); after some b 2 h 2 b 2DKh h 2DKb
algebraic development, they derived the maximum a þ b ¼ þ ¼ K:
2D 2D 2D bðb þ hÞ 2D hðb þ hÞ
inventory level, Q ; the optimal maximum back-
ð9Þ
order level, B ; and the minimum average cost,
CðQ ; B Þ as
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi Hence, we derive Eq. (7). That means, if we
 2DKb  2DKh know our goal is to obtain Eq. (3), then we can
Q ¼ ; B ¼ and derive Eq. (7). However, it is not easy to explain
hðb þ hÞ bðb þ hÞ
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi why if we already know our goal, Eq. (3), then we
  2DKbh construct Eq. (7) to derive those already known
CðQ ; B Þ ¼ : ð3Þ
ðb þ hÞ results. In the next section, we will directly derive
the minimum value without implicitly knowing the
results, Eq. (3).

2. Review of previous results

3. Improved algebraic work
If we study Eq. (2), then we will face the
following question: find x and y with x > 0 and We try to minimize CðQ; BÞ for Q > 0 and B > 0:
y > 0 such that Our procedure contains two steps: (a) We find the
1 ¼ x þ y: ð4Þ minimum along each ray B ¼ kQ for 0okoN;
denoted as
The most common solution for Eq. (4) is the
trigonometric identity: CðkÞ ¼ minfCðQ; BÞ:B ¼ kQg: ð10Þ
1 ¼ cos2 y þ sin2 y: ð5Þ (b) We obtain the minimum of CðkÞ; for
0okoN:
The other possible answer for Eq. (4) is

2
2 We have that CðQ; kQÞ ¼ aQ þ d=Q where a ¼
1  a2 2a ðh þ bk2 Þ=2ð1 þ kÞ and d ¼ DK=ð1 þ kÞ: From the
1¼ þ : ð6Þ
1 þ a2 1 þ a2 basic quadratic equation, we imply that
rffiffiffi!2
Grubbstrom. and Erdem (1999) offered another a d pffiffiffiffiffiffi
solution as CðQ; kQÞ ¼ Q þ2 ad : ð11Þ
Q a
h 2Db b 2Dh
1¼ þ : ð7Þ Therefore, the minimum value of CðQ; kQÞ;
2D hðb þ hÞ 2D bðb þ hÞ
defined as CðkÞ; satisfies
It is not easy to convince ordinary people to pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
pffiffiffiffiffiffi pffiffiffiffiffiffiffiffiffiffi h þ bk2
solve Eq. (4) by the result in Eq. (7). There are C ðkÞ ¼ 2 ad ¼ 2DK : ð12Þ
infinite possible results of x and y such that they 1þk
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R. Ronald et al. / Int. J. Production Economics 92 (2004) 197–200 199

Motivated by Eq. (12), we consider the follow- That means he required Eq. (7) to decompose
ing function: one. After lengthy computation, he derived that
sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
h þ bk2
f ðkÞ ¼ : ð13Þ  2DKrb  2DKrh
ð1 þ kÞ2 Imax ¼ ; B ¼ and
hðb þ hÞ bðb þ hÞ
We may rewrite f ðkÞ as sffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
2DKbrh
bþh 2b CðQ ; B Þ ¼ þ cD; ð17Þ
f ðkÞ ¼ 2
 þ b; ðb þ hÞ
ð1 þ kÞ 1 þk
which is a quadratic equation in variable 1=ð1 þ such that EPQ model with shortages can be
kÞ; then we have introduced at the high-school level.

2 However, if we carefully compare Eqs. (1) and
1 b bh (15), we have that both objective function have the
f ðkÞ ¼ ðb þ hÞ  þ : ð14Þ
1þk bþh bþh expression

If we combine the results in Eqs. (12) and (14), D h 2 b

then the minimum value of CðkÞ; for 0okoN; Cðx; yÞ ¼ x þ y2 þ c 1 þ c 2 ; ð18Þ
pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi x þ y 2D 2D
equals 2DKbh=ðb þ hÞ: Moreover, Eq. (14) im-
pffiffiffiffiffiffiffiffi such that in Eq. (1), x ¼ Q; y ¼ B; c1 ¼ K
plies that k ¼ ðh=bÞ: Eq. (11) implies Q ¼ d=a
and c2 ¼ 0: Moreover, in Eq. (15), x ¼ Imax ;
and B ¼ ðh=bÞQ : Plugging the expression
y ¼ B; c1 ¼ Kr and c2 ¼ cD: Consequently, the
of a and d, then we derive the same results as in
optimal results in Eqs. (3) and (17) are very similar
Eq. (3).
such that the differences are (a) K and Kr; (b) 0
We used the algebraic method to derive the
and cD:
optimal solution for the EOQ inventory model
We conclude our finding:
with complete backlogging. Our procedure is self-
explained, without referring to the sophisticated (1) Ca! rdenas-Barron
! (2001) used the sophisti-
decomposition of one. cated expression of Eq. (7), however, he
Next, we will briefly demonstrate that our did not seem to be aware that selecting
procedure can be applied to the EPQ model Eq. (7) would be beyond high-school level
with shortages and complete backlogging. ability.
Ca! rdenas-Barron ! (2001) extended the algebraic (2) With small modifications, changing K to Kr
method of Grubbstrom . and Erdem (1999) to and adding cD to the optimal value, our
study the following EPQ model with short- procedure can be applied to derive the optimal
ages and complete backlogging. According to solution.
Eq. (6) of Ca! rdenas-Barron ! (2001), he tried to
minimize
D References
CðImax ; BÞ ¼
Imax þ B

C!ardenas-Barr!on, L.E., 2001. The economic production quan-
h b 2 tity (EPQ) with shortage derived algebraically. International
 ðImax Þ2 þ B þ Kr þ cD:
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ð15Þ EPQ inventory model under permissible delay in payments.
International Journal of Production Economics 84,
In Eq. (7) of Ca! rdenas-Barron
! (2001), similar to
307–318.
.
Grubbstrom and Erdem’s procedure, he rewrote Goyal, S.K., 1985. Economic order quantity under conditions
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h 2DKrb b 2DKrh Grubbstrom,. R.W., 1996. Material requirements planning and
Kr ¼ þ : ð16Þ
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