A Stochastic Goal-Based Economic Order Quantity Model for Dairy Products

Abstract

Resilient efforts are still sought to optimize the inventory of dairy products under demand uncertainty. Several industries operate under uncertainties that severely affect company performance. In this paper, a multi-objective goal programming model is proposed to optimize the economic order quantity of dairy products under stochastic demand. Adopting a Markov chain approach, the model initially defines the demand transition matrix, inventory cost matrix, objective function, priorities, and goal constraints of dairy products. The model seeks to minimize the deviation variables from the targeted economic order quantity and total inventory costs of dairy products over a finite period planning horizon. The sum of deviations is minimized so that the actual economic order quantity and inventory costs meet the targeted levels of dairy products. Using the simplex method, an analytical solution is obtained and a numerical example is presented for illustration; demonstrating the overachievement or underachievement of the targeted economic order quantity and inventory costs of dairy products. Results indicate how priority-based goal programming solution is sensitive to the highest priority to be achieved. The proposed model can be effective where the relevant economic order quantity and inventory costs can be prioritized if necessary.