Economic Order Quantity Model with Innovation Diffusion Criterion under Influence of Price-Dependent Potential Market Size

Abstract

In last few decades various models developed under inventory control section whether of probabilistic or deterministic nature did not consider the effect of marketing parameters. The marketing parameters especially associated with innovation diffusion theory make the inventory models more realistic. In this paper, an inventory model has been proposed based on the explicit assumptions of interaction of marketing parameters to the optimal inventory replenishment policy. A time-dependent innovation driven demand has been incorporated in the basic economic order quantity (EOQ) model to know the realistic features of the model. This model assumes that potential market size is dynamic over time and is dependent on the price of the product. The model is illustrated with a numerical example and to know the effectiveness of the model a sensitivity analysis of the optimal solution with respect to different parameters has been performed.