Applied Mathematical Sciences, Vol. 9, 2015, no.

71, 3511 - 3523

HIKARI Ltd, www.m-hikari.com
http://dx.doi.org/10.12988/ams.2015.52105

An Intuitionistic Approach for Price Breaks in

EOQ from Buyer’s Perspective

Prabjot Kaur 1 and Mahuya Deb2

1
Dept. of Applied Mathematics
Birla Institute of Technology, Mesra
Jharkhand, India
2
Usha Martin Academy, Ranchi
Jharkhand, India

Copyright © 2015 Prabjot Kaur and Mahuya Deb. This article is distributed under the Creative
Commons Attribution License, which permits unrestricted use, distribution, and reproduction in
any medium, provided the original work is properly cited.

Abstract

Inventory though an ideal resource is considered to be one of the most important

asset which fulfils various functions of an organisation. The classical model
attributed to Ford Whitman Harris ( Harris 1913 ), for inventory, however, does
not take into account , amongst other things , the quantity discounts given by the
supplier, on the cost of the units themselves in order to motivate buyers to
purchase in larger quantities . The occurrence of such problems takes place when
discounts are offered for purchase of large quantities. These discounts take the
form of price breaks (Gupta and Hira, 2011). Unlike the majority of the
inventory literature, where purchase price is assumed to be constant and hence
excluded from the model, suppliers in many real life applications occasionally
offer price discounts.The current paper is an attempt to define a class of inventory
problems for buyers where the demand and purchasing cost is a triangular
intuitionistic fuzzy number. The ultimate objective is to determine the optimal
order quantity and the minimum cost under the proposed model.

Keywords: Price breaks, Inventory, Triangular Fuzzy Numbers, Triangular

Intuitionistic Fuzzy Numbers
3512 Prabjot Kaur and Mahuya Deb

1. Introduction
Classical inventory problems are generally formulated under the assumption
that the cost of the item was not affected by the size of the order. It considers a
unit price which is constant and independent in nature. The supplier’s challenge
lies as to how he can adjust his pricing schedule so as to motivate his customer to
buy in large quantities. To encourage buyers to purchase more units of an item
this adjustment in the price schedule calls for offering quantity discounts .Such a
situation calls for evaluating the trade off between the saving in purchase cost ,
ordering cost and the increased cost of holding the inventory. This inclusion of
purchase price makes the inventory problems different from the classical ones. In
the classical inventory model [9], the optimal order quantity Q* is the point that
minimizes the total annual inventory cost, where total annual inventory cost is a
function of order quantity, and is the sum of the annual carrying cost and the
annual ordering cost. In determining the annual carrying cost, it is convenient to
use the average on-hand inventory level that can be simply calculated as one-half
of the order quantity. Here, we describe the function of total annual inventory cost
of inventory model as following [19]

DC0 QCh
TC= +
Q 2

Where
Q = Number of pieces per order,
C0 = Ordering cost for each order,
Ch = Holding or carrying cost per unit per year,
D = Annual demand in units.

Therefore when discount is available, the total cost per unit of inventory system
and items would be,
𝐷∗𝐶0 1
TC = 𝐷𝐾1 + + ∗ 𝑄 ∗ 𝐾1 ∗ 𝐼,
𝑄 2

Where K1 is the price per unit for Q units, I is the holding cost rate

By using property of minimum, the optimum order quantity is given by

2∗𝐶0∗ 𝐷
Q*= √
𝐾1 ∗𝐼
An intuitionistic approach for price breaks in EOQ 3513

Suppose the following price discount schedule is quoted by a supplier in which a

price break (quantity discount) occurs at quantity b. This means
Quantity Price per unit (Rs)
0 ≤ Q1< 𝑏 P1
b ≤ Q2 P 2 (<P1)

The optimal purchase quantity can be determined by the following procedure:

The Algorithm:

Step 1: Consider the lowest price (P2) and determine Q2* by using the basic EOQ
formula:

2 DC0
Q2* =
P2 * I

If Q2* lies in the range specified, b  Q2 * then Q2* is the EOQ i,e Q*=Q2*. The
optimal cost TC* associated with Q* is calculated as follows:

DC0 bP2 * I
TC*=. DP2  
b 2

Step 2: If Q2*< b, we cannot place an order at the reduced price P2. We calculate
Q1* with price P1 and the corresponding total cost TC at Q1*.If TC(b)>TC(Q1*) ,
then EOQ is Q*=Q1*.

Otherwise Q*=b is the required EOQ.

An extensive study of the literature discusses various inventory models related to

discounts to get deeper insights into relationship between price discounts and
order policy. Traditionally, the quantity discount problem has been analyzed from
a buyer's perspective. Hadley and Whitin [3], Peterson and Silver [16] and
Starr &Miller [8] considered various discount policies and demand assumptions.
On the other hand Monahan [6] has approached the problem from a supplier's
perspective. Lee et al [12 ] in his paper has discussed about the joint problem of
ordering and offering price discount by a supplier to his sole/major buyer.Yang
[14] developed an optimal pricing and ordering policy for a deteriorating item
with price sensitive demand. Inventory management with uncertain prices has
received intense attention in the operations research and management science
community for years. A major shortcoming of the current literature on inventory
models with discount prices is that the value of the discount price is assumed to
be deterministic. Precise information about the inventory parameters are difficult
to tap in the real world. This type of imprecise data is not always well represented
3514 Prabjot Kaur and Mahuya Deb

by random variables selected from probability distribution. So, decision making

methods under uncertainty are needed. To deal with this uncertainty and imprecise
data, the concept of fuzziness can be applied. Fuzzy set theory was introduced by
Zadeh [11] and the application of fuzzy set theory to inventory problems has been
proposed by authors like Kacpryzk and Staniewski [5] and Park [9]. Benton
[21] presented an efficient heuristic algorithm for evaluating alternative discount
schedules under multi-item and multi-supplier conditions, considering the
resource limitations. Benton and Park [22] classified the literature on lot sizing
determination under several types of discount schemes and discussed some of the
significant literature in this area. Das et al [7] discussed a multi objective
economic lot size model for both the buyer and the seller for a deteriorating item
with discount in crisp and fuzzy environment. Syed and Aziz [20] developed a
Fuzzy inventory model with price breaks where the model is solved for optimum
results by reformulating it as Fuzzy linear programming problem. One thing the
fuzzy sets lack is non-membership function. The information expressed by fuzzy
sets is not complete in context of decision making because alternatives satisfy the
attributes but no arrangements for alternatives dissatisfying the attributes.
Atanassov [10] characterized the IFS by expressing it in terms of membership
function and non-membership function, such that the sum of both values is less
than one. Thus intuitionistic fuzzy set theory seems to be very useful for
modelling situations with missing information or hesitance. Banerjee and Roy
[17] generalized the application of the intuitionistic fuzzy optimization in the
constrained multi objective stochastic inventory model. Recently Chakraborty et
al [21] gave the solution for the basic EOQ model using intuitionistic fuzzy
optimization technique. Pal and Chandra [13] in their paper studied a periodic
review inventory model with stock dependent demand and When stock on hand
was zero, the inventory manager offers a price discount to customers who are
willing to backorder their demand. Lee and Yang [1] proposed an efficient
genetic algorithm to solve the lot sizing problem with multi supplier and quantity
discount.
This paper is organized as follows: Section 2 describes the basics of Intuitionistic
Fuzzy Set . Section 3 deals with the development of Inventory Model with price
breaks using the demand and price as triangular fuzzy and triangular intuitionistic
fuzzy numbers. In Section 4 a numerical example illustrates our proposed
approach. Finally we concluded in Section 5 that the optimal order quantity for
crisp, fuzzy and intuitionistic fuzzy sets is the same while there exist differences
in the total cost. In addition to the above sensitivity analysis is also carried out.

2. Fuzzy EOQ Model with fuzzy Price break

In the following, we introduce the fuzzy inventory models with fuzzy price break
and find the optimal solutions of the model for the optimal crisp order quantity. In
this paper, we assume that there is no stock outs , no backlogs , replenishment is
instantaneous and the ordering cost involved to receive an order are known and
An intuitionistic approach for price breaks in EOQ 3515

constant and that purchasing values at which discounts are offered are triangular
fuzzy numbers . In addition, in order to simplify the treatment of this fuzzy
inventory models, we use the following variables:
~
D : fuzzy yearly demand,
~
P : fuzzy purchasing cost
~ ~ ~
And suppose D  ( D1 , D2 , D3 ) , P  ( P1 , P2 , P3 ) , P1  ( P11 , P12 , P12 ) and
~
P2  ( P21, P22 , P23 ) are non negative triangular fuzzy numbers.
Now, we introduce the fuzzy inventory model under fuzzy demand and fuzzy
purchasing price at which the quantity discounts are offered. The fuzzy total cost
function is given by –
~ ~
~ ~ ~ DC0 QP * I
TC  D * P   (1)
Q 2
Then we solve the optimal order quantity of formula (1)

Using the arithmetic operations of triangular fuzzy numbers we calculate the

fuzzy total inventory cost as follows

~ DC Q * P1 * I DC Q * P2 * I DC Q * P3 * I
TC  ( D1P1  1 0  , D2 P2  2 0  , D3P3  3 0  ) The
Q 2 Q 2 Q 2
total cost after defuzzification as in formula (*) is given by

~ 1 DC Q * P1 * I DC Q * P2 * I DC Q * P3 * I
D(TC )  [ D1P1  1 0   2( D2 P2  2 0  )  D3 P3  3 0  ]
4 Q 2 Q 2 Q 2
~ ~
We find the minimization of D(TC ) by taking the derivative of D(TC ) and
equating it to zero which after simplification gives

~ 2( D1C0  2 D2 C0  D3C0 )
Q (2)
( P1 I , P2 I , P3 I )

Fuzzy price break

Quantity Price per unit (Rs)

~
0 ≤ Q1< 𝑏 P1
~ ~
b ≤ Q2 P2 ( P )1

The Algorithm
~ ~
Step I: Consider the lowest price ( P2 ) and determine Q2 by using the basic EOQ
formula:
3516 Prabjot Kaur and Mahuya Deb

~ 2( D1C0  2 D2 C0  D3C0 )
Q2 
( P1 I  P2 I  P3 I )

~ ~ ~
If Q2 lies in the range specified, b  Q2 then Q2 is the EOQ .The optimal cost
~ ~
TC associated with Q is calculated as follows:
~ ~
~ ~ ~ DC0 bP2 * I
TC =. DP2  
b 2
~ ~
Step 2: If Q2 < b, we cannot place an order at the reduced price P2 . We calculate
~ ~ ~ ~ ~ ~
Q1 with price P1 and the corresponding total cost TC at Q1 . If TC (b)  TC (Q1 ) ,
~
then EOQ is Q*=. Q1 Otherwise Q*=b is the required EOQ.

3. Intuitionistic Fuzzy EOQ Model

We assume in the crisp model the demand and the purchasing price at which
discounts are offered to be triangular Intuitionistic fuzzy numbers[10] and
represented as follows:-
 
𝐷̿ = ( D1 , D2 , D3 )( D1 , D2 , D3 )

 
𝑃̿
 ( P1 , P2 , P3 )( P1 , P2 , P3 )

 
P1  ( P11 , P12 , P13 )( P11 , P12 , P13 )

 
P2  ( P21 , P22 , P23 )( P21 , P22 , P23 )

DC0 Q P * I
TC  D P  
Q 2

 
Accuracy function for defuzzification in TIFN 𝐴̿  (a1, a2 , a3 );(a1/ , a2 , a3/ )

is defined as
An intuitionistic approach for price breaks in EOQ 3517

′ ′
(𝑎 +2𝑎 +𝑎 )+(𝑎 +2𝑎2 +𝑎3 ) ′
𝐴′̿ = 1 2 3 8 1 (**)

The basic EOQ after defuzzification using equation (**) is given by


2( D1C 0  4 D2 C0  D3C0  D1C 0  D3 C0 )
Q . (3)
 
( P I  4P I  P I  P I  P I )
1 2 3 1 3

The Algorithm

Step 1: Consider the lowest price ( P2 ) and determine Q2 by using the basic EOQ
formula (3)

If Q2 lies in the range specified, b  Q2 then Q2 is the EOQ .The optimal cost
TC associated with Q2 is calculated as follows:

DC0 b P * I
TC  D P  
b 2

Step 2: If Q2 < b, we cannot place an order at the reduced price P2 . We calculate

Q1 with price P1 and the corresponding total cost TC at Q1 . If TC(b)  TC(Q1 ) ,
then EOQ is Q*= Q1 Otherwise Q*=b is the required EOQ.

4. Numerical Example
A manufacturing company issues the supply of a special component which has the
following price schedule:

0 to 99 items: Rs 1000 per unit

100 items and above: Rs 950 per unit

The inventory holding costs are estimated to be 25% of the value of the inventory.
The procurement ordering costs are estimated to be Rs 2,000 per order. If the
annual requirement of the special component is 300, compute the economic order
quantity for the procurement of these items.
3518 Prabjot Kaur and Mahuya Deb

Solution:

Given D=300, C0=Rs 2000 I =0.25 P1=Rs 1000 P2= Rs 1000

We calculate Q2 corresponding to the lowest price 950.

2 * 300 * 2000
Q2 =
0.25 * 950

= 71 which is less than the price break point.

Therefore, we have to determine the optimal total cost for the first price and the
total cost at the price- break corresponding to the second price and compare the
two

300 * 2000 71 *1000 * 0.25

TC (P1=1000) = 300 *1000  
71 2

= Rs 317325.704

And

300 * 2000 100 * 950 * 0.25

TC (b=100)  300 * 950  
100 2

=Rs 302875 which is lower than the total cost corresponding to Q2.

Therefore, the economic quantity for a procurement lot is 100 units (price break
point)

Fuzzy Case:
~
D  (200,300,400)
~
P1  (900,1000,1100)
~
Let P2  (850,950,1050)
C 0  Rs 2000
I  0.25

According to the algorithm

~ ~
We calculate Q2 corresponding to the lowest price P2
An intuitionistic approach for price breaks in EOQ 3519

~ 2( D1C0  2 D2 C0  D3C0 )
Q2 
( P1 I  P2 I  P3 I )

= 82.078 which is less than the price break point

Therefore, we have to determine the optimal total cost for the first price and the
total cost at the price- break corresponding to the second price and compare the
two.
~ ~
The optimal cost TC associated with P1 is calculated as follows:
~ ~ ~
~ ~ ~ DC0 Q2 P1 * I
TC =. DP1  ~ 
Q2 2

=319821(after defuzzification )

Also
~ ~
~ ~ ~ DC0 bP2 * I
TC (b=100)= DP2  
b 2

= 307875 which is lower than the total cost corresponding to Q2.

Therefore, the economic quantity for a procurement lot is 100 units (price break
point)

Intuitionistic Fuzzy Case:

~
D  ( 200,300,400)(100,300,500)
~
P1  (900,1000,1100)(800,1000,1200)
~
Let P2  (850,950,1050)(750,950,1150)
C0  Rs 2000
I  0.25

According to the algorithm

We calculate Q2 corresponding to the lowest price P2


2( D1C0  4 D2 C 0  D3C0  D1C 0  D3 C 0 )
Q2 
 
( P1 I  4 P2 I  P3 I  P1 I  P3 I )

=50.26 which is less than the price break point

3520 Prabjot Kaur and Mahuya Deb

Therefore, we have to determine the optimal total cost for the first price and the
total cost at the price- break corresponding to the second price and compare the
two.
~
The optimal cost associated with P1 is calculated as follows

DC0 Q2 * P1 * I
TC  D P1  
Q2 2

= 330720.3363 (after defuzzification )

Also

DC0 b * P2 * I
TC  D P2  
b 2

=240453.125 (after defuzzification) which is lower than the total cost

corresponding to Q2.

Therefore, the economic quantity for a procurement lot is 100 units (price break
point) which is described in Table 1.

Table 1
Crisp Fuzzy Intuitionistic
Optimal Quantity 100 100 100

Optimal Cost 302875 307875 240452.125

5. Sensitivity Analysis
Now the effect of changes in the system parameters on the optimal values of Q i,e
the economic order quantity when only one parameter changes and others remain
unchanged the computational results are described in Table 2. The EOQ is less
sensitive to the changes in demand.

Table 2
Demand EOQ
270 67.43
280 68.67
Crisp 300 71.08
320 73.40
340 75.67
An intuitionistic approach for price breaks in EOQ 3521

Table 2 (Continued)

(250,270,300) 78.23
Fuzzy (260,280,310) 79.65
(200,300,400) 82.08
(300,320,340) 84.77
(320,340,360) 87.38
(250,270,300)(240,270,310) 67.45
(260,280,310)(250,280,320) 68.97
Intuitionistic (200,300,400)(100,300,500) 71.08
Fuzzy (300,320,340)(280,320,350) 73.25
(320,340,360)(300,340,380) 75.67

6. Conclusion and further research

This paper contributes to the application of the EOQ model with price break in
crisp, fuzzy and intuitionistic environment. The uncertainty inherent in the price
and demand due to the dynamic business environment is reflected by considering
these parameters as fuzzy and intuitionistic fuzzy numbers. The optimal values for
the problem are obtained and the solution compared with the fuzzy and crisp case.
A numerical example coherent with these settings reflects the same. Although the
addition of a one more degree of freedom in the uncertainty measure has not much
impact on the optimal quantity being ordered but there is substantial savings in
terms of optimum cost. The advantage of the proposed intuitionistic approach is
that it is a robust model which deals with the varying parameters in a general
business inventory consistent with human behaviour by reflecting and modelling
the hesitancy present in real life situations. The sensitivity analysis indicates the
consistency of the crisp case from the fuzzy and intuitionistic fuzzy sense. Even
though the results are same in terms of the optimal quantity the buyers are in a
position to make better decisions even by paying for some uncertainty costs. It
gives an opportunity for decision making with better results with the use of
multiple choice and options. In fact discount level and price consciousness have
an effect on purchasing decisions of buyers. Prior knowledge affects price
acceptability. However in situations where the decision maker does not have
exact knowledge about the values of the coefficients that take part in the problem
and moreover the vagueness is not of probabilistic kind, the inexact values which
are determined by models using IF numbers can be substantially useful. This can
be an advantage for the buyer who can easily minimize the worse cases and
maximize the better ones. Hence this model is executable and useful in the real
world. Further research includes the task to cover more membership functions
than the triangular ones.

Also the difference between different defuzzification methods should be

investigated within these settings.
3522 Prabjot Kaur and Mahuya Deb

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Received: February 17, 2015; Published: April 23, 2015