APPLICATION OF ECONOMIC ORDER QUANTITY MODEL FOR THE PURCHASE AND GROWTH OF ORGANIC POULTRY WITH INCREMENTAL QUANTITY DISCOUNTS

Abstract

The purpose of the study is to develop a lot sizing model for growing chickens if the supplier of the products offers incremental quantity discounts. A mathematical model was derived to determine the Optimal Inventory Policy which minimizes the total inventory cost in both the owned and rented facilities. A solution procedure for solving the model is developed and illustrated through a numerical example. Sensitivity Analysis was performed to demonstrate the response of the Order Quantity and total costs to some key parameters. Incremental quantity discounts in reduced purchasing costs. However, ordering very large quantities has downsides as well. The biggest downsides includes the increase holding cost, the risk of running out of storage capacity and item deterioration since the cycle time increases if larger quantities are purchased. Owing to the importance of growing items in the food chains, the model presented in this thesis can be used by procurement and inventory managers when making purchasing decisions.