Economic order quantity and storage assignment policies

The basic Harris’s lot size model dates back to 1913 (Harris, 1913), hence one century from its publication has been recently celebrated. Starting from the seminal work of Harris, a wide plethora of contributors has faced with the lot-sizing problem for fitting the basic model of the economic order quantity to several environments. In fact, the three key parameters constituting the basic model, i.e. the demand rate, the ordering costs, and the inventory holding costs, have been widely explored in order to relax the assumptions of the original model. However, to the best of the authors’ knowledge, the liaison between holding costs and warehouse management has not been completely addressed. The holding costs have been early considered for simplicity as primarily given by the cost of capital, and thus dependent solely on the average inventory on stock. Conversely, by including a more detailed supply chain costs contribution, the economic order quantity calculus appears depending on a recursive calculus process and on the storage assignment policy. In fact, different approaches of warehouse management, e.g. shared and dedicated storage, lead to highly variable distances to be covered for performing the missions. This leads to a total cost function, and consequently to optimum lot sizes, that are affected by the warehouse management. In this paper, this relationship has been made explicit in order to evaluate an optimal order quantity taking into account storage assignment policies.