1. ¹The William Paterson University of New Jersey, Wayne, NJ, USA
2. ²Hung Kuang University, Taichung, Taiwan ROC

Correspondence: J-T Teng, Cotsakos College of Business, The William Paterson University of New Jersey, 1600 Valley Road, Wayne, NJ 07470, USA. E-mail: TengJ@wpunj.edu

Received June 2003; Accepted October 2003.

Abstract

In today's time-based competition, the unit cost of a high-tech product declines significantly over its short life cycle while its demand increases. In this paper, we extend the classical economic order quantity model to allow for not only time-varying demand but also fluctuating unit cost. In addition, we also allow for shortages and partial backlogging. We then prove that the optimal replenishment schedule not only exists but also is unique. In addition, we also show that the total cost is a convex function of the number of replenishments, which simplifies the search for the optimal number of replenishments to find a local minimum. Moreover, we further simplify the search process by providing an intuitively good starting search point.