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A literature review on lot size Lot size with

quantity
with quantity discounts: discounts
1995-2013
Valdecy Pereira and Helder Gomes Costa 341
Departamento de Engenharia de Produção,
Received 21 July 2013
Universidade Federal Fluminense, Niterói, Brazil Revised 12 January 2014
Accepted 30 April 2014

Abstract
Purpose – This paper aims to present a literature review on models developed for the economic order
quantity (EOQ) problem with incremental and all-units discounts, extending the work of Benton and
Park (1996) which covered the most significant literature, from 1963 to 1994, about EOQ with discounts
and that has identified four open areas in this field of study. The modeling of lot size with discounts
wishes to give good solutions for realistic situations, such as those concerning the discounts offered by
suppliers, to rises in the demand.
Design/methodology/approach – The research was carried out in papers published from 1995 to
2013, and indexed in databases as Scopus and ISI Web of Science. The papers were compared through
objective function, constraints, discounts, developed algorithms, allowance of shortages or
multiproduct, demand pattern and buyer or buyer–supplier perspective.
Findings – Results indicate two areas that still remain untouched, and probably the main cause is due
to mathematical complexities. The authors have also identified an increasing trend of works that
compared just-in-time with the EOQ with quantity discounts policy and also an increasing number of
works that solved this category of problems with algorithms.
Research limitations/implications – The research does not cover materials published in working
papers, monographs, thesis, conferences or journals that are not indexed in those databases.
Originality/value – This manuscript fills a gap in the study of EOQ with incremental discounts, as it
highlights the leading edge advances in this field and the main differences among models. As a whole,
the new trends about modeling EOQ problems with quantity discounts were discovered.
Keywords Decision making, Operations management, EOQ, Management,
Supply chain management, Inventory
Paper type Literature review

1. Introduction
The economic order quantity (EOQ) is an important tool for companies that wish to
minimize their inventory costs, finding a balance between the number of orders per year
and the annual holding cost. This policy helps companies to reinvest capital, which was
previously wasted on poorly planned inventory, to other areas of the company or to take
advantage of new opportunities in the market.

The authors give thanks to the National Council of Technological and Scientific Development Journal of Modelling in
(Conselho Nacional de Desenvolvimento Científico e Tecnológico), Brazil, and to the Coordination Management
Vol. 10 No. 3, 2015
for the Improvement of Higher Level Personnel (Coordenação de Aperfeiçoamento de Pessoal de pp. 341-359
Ensino Superior), Brazil. The authors also give thanks to the reviewers and Editorial Board of the © Emerald Group Publishing Limited
1746-5664
journal: the comments improved the quality of this paper. DOI 10.1108/JM2-07-2013-0029
JM2 However, the basic EOQ model, presented by Harris (1913), despite being a robust
10,3 model, cannot be applied to all situations. For example, the model does not take into
account the discounts that can be given by suppliers when the buyer acquires a larger
volume of a given product. Many other models were developed since the EOQ creation,
each one making some sort of modification to the basic formula or using different
mathematical approaches to find more suitable solutions to real problems.
342 A specific category of real problems demands special attention – the EOQ models
under quantity discounts. The existence of quantity discount can involve a significant
decrease in the total inventory cost, for the reason that, it could be rewarding to acquire
a larger quantity of products with a lower price. Therefore, the development of models
that can find the optimal or near-optimal lot size for products with quantity discounts
can be interpreted as a way to have even more capital to be reinvested and even more
market opportunities to take advantage.
To investigate developments, challenges and achievements in this category of
problems, this research takes into consideration the previous work of Benton and Park
(1996) that made a literature review of the EOQ model under quantity discounts from the
period of 1963 to 1994. Their work studied this problem under both buyer and buyer–
supplier perspectives. It considers all-units and incremental discounts, and time-phased
and non-time-phased demand. The present work analyzes, from the period of 1995 to
2013, a total of 28 papers on EOQ models which have taken into account at least one type
of discount. This paper aims to identify the state of the art on the EOQ models with
quantity discounts, extending the work of Benton and Park (1996).
In Section 2, the results of the work of Benton and Park (1996) are discussed and a
common ground is established to compare the results found by the present work. Section
3 shows the methodology used to obtain a set and a subset of valid papers for this review
of EOQ models with incremental and/or all-units discounts. In Section 4, a small review
about each paper of the chosen valid subset of papers is presented. Section 5 shows the
details of the models which are objective function, types of constraints, types of
discounts, developed algorithms, allowance of shortages or multiproducts, demand
pattern and buyer or buyer–supplier perspective. An analysis about the main results is
made and also a comparison between both literature reviews. Finally, this work
concludes in Section 6, where the insights obtained about the review are discussed.

2. The literature review from 1963 to 1994

In this section, the results of the study made by Benton and Park (1996) are explained
and the main features described here are used as a common ground for comparison and
taxonomy for the literature review made in this present work.
Benton and Park (1996) studied the literature on lot sizing determination under
several types of discount schemes and discussed some of the significant literature in this
area over three decades. As a result of their work, they classified 48 papers in the
following manner:
• Buyer’s perspective: The buyers should consider the tradeoffs between the costs
and the benefits resulting from larger orders and come up with reasonable
purchasing decisions.
• Buyer–supplier perspective: The suppliers must develop proper quantity discount
schedules in a way not only to boost the buyers to order more at a time but also to
maximize the profits for a specific component or a group of components, and a
 quantity discount can be used as a vehicle to achieve the channel coordination Lot size with
necessary to arrive at the maximum joint profit to both the buyer and the supplier. quantity
• All-units discounts: Under all-units discounts, the unit price decreases as the order discounts
size increases according to the price schedule offered by the supplier. A discount
price is applied to all products of an order which falls in a certain interval. The
total cost curve is discontinuous at the price break quantities, so that the EOQ
minimizing the total cost for each unit price could not be valid if they are out of the 343
boundaries of the quantity discount interval for the discount price. Consequently,
the optimal lot size is determined at either a valid EOQ or one of the price break
quantities in terms of the minimum total cost.
• Incremental discounts: Under incremental discounts, a discount price applies the
lower unit price only to the units purchased above a specified quantity, so that the
incremental discount schedule leads to multiple unit purchasing prices for
the products of an order. The typical total cost curves under incremental
discounts are convex and continuous. Consequently, the optimal lot size is
determined at an EOQ in terms of the minimum total cost.
• Demand pattern: The demand pattern could be time-phased, when the demand is
changing in time and non-time-phased, when the demand is fixed in a planning
horizon of time.

Table I summarizes the results obtained by Benton and Park, for each one of the
classifications mentioned before.
With the time-phased demand pattern and buyer perspective, the authors have found
a total of 13 papers involving only all-units discount, one paper has only incremental
discounts and, finally, one paper that dealt with both discounts. They had not found any
contributions with the buyer–supplier perspective.
With the non-time-phased demand pattern and buyer perspective, the authors have
found a total of 14 papers involving only all-units discount, four papers with incremental
discounts and, finally, one paper that dealt with both discounts. With the
buyer–supplier perspective, the authors have found a total of 11 papers involving only
all-units discount and four papers with incremental discount. It can be noticed in the
Table I, there are in total 49 papers, that is because one paper was double-counted for
including models for both types of discount and time-phased and non-time-phased
demand pattern.

3. Methodology
In this section, it is explained how the use of the Scopus and ISI Web of Knowledge
search engines supported the selection of papers.

Type of discounts Buyer Buyer–supplier Buyer Buyer–supplier Table I.

Number of papers by
All-units discount 13 _ 14 11 type of discount,
Incremental discount 1 _ 4 4 perspective and
Both 1 _ 1 _ demand pattern
Demand pattern Time-phased Non-time-phased (1963-1994)
JM2 The expression “Economic Order Quantity Discount” was used to search for papers that
10,3 contained them in the subject, title or abstract. The search was realized in January of
2012 and taking in consideration only the papers published between 1995 and 2013.
Figure 1 shows the total population of papers.
The ISI Web of Knowledge has a total of 114 unique papers, the Scopus database has
a total of 37 unique papers and there are 57 papers common to both databases, with a
344 total of 208 papers. Figure 2 shows the production of valid papers per year. A paper was
considered valid if it presents any EOQ model with incremental and/or all-units
discounts considerations. A total of 161 with the requirements for validity were found.
After an analysis of the abstracts of the set of valid papers, a subset composed by 28
papers was gathered for a deeper analysis. To classify this set of papers, the present
work takes the same classification used by Benton and Park (1996), and in addition, new
information about the models will be also presented such as shortages, multiproduct
capacity, details about the model objective function, constraints and algorithms.
One can note a positive trend in the number of papers produced per year; this trend is
possibly caused by the development of many works that compared the just-in-time (JIT)
philosophy and the EOQ with quantity discounts policy. We also noted an increasing
number of works that solved EOQ problems with algorithms. In Section 4, there is a
selection of papers that corroborates our point of view.

4. Synthesis of the models

In this section, it is presented a short review of the 28 papers analyzed, separated by
theme and following the classification described in Section 2. More details about the
models used in each paper are given in Section 5.

ISI Scopus

114 57 37

Figure 1.
Total of papers

Figure 2.
Papers produced per
year
4.1 All-units discount – buyer perspective – time-phased Lot size with
Maiti et al. (2006) solved a mixed-integer non-linear programming EOQ problem with a quantity
real-coded genetic algorithm. The algorithm has been applied to solve a multiple price
break structure for a multiproduct deterministic inventory. The inventory control
discounts
system has two separate storage facilities (one owned and the other rented) due to
limited capacity of the existing owned facility.
Panda et al. (2008) developed a single deteriorating product EOQ model, in which the 345
demand is stock-dependent and the discounts are made to increment the demand rate.
The model solves the problem to discover how much discount may be given during
deterioration. The authors divided the model in a basic model and four special cases:
• Basic: A model with pre- and post-deterioration discounts.
• Special Case 1: A model with post-deterioration discounts.
• Special Case 2: A model without deterioration discount.
• Special Case 3: A model for products with instant deterioration.
• Special Case 4: A model for products with fixed lifetime.

4.2 All-units discount – buyer perspective – non-time-phased

Lam and Wong (1996) developed a model that solves the joint EOQ problem from the
buyer and seller perspective, applying fuzzy mathematical programming. This
approach find a solution to the number of price break discounts and the quantities
allowed in each price break, to achieve the optimal joint cost. The profit between buyer
and seller can be achieved with the same technique based on their respective cost
functions, different from the traditional approach that uses ratios based in the bargain
power of the buyer or the seller. The authors perceived that the traditional resolutions
for joint EOQ (solving the problem from the perspective of the buyer/seller and then
adjust the solution for the seller/buyer) usually split the profit in favor of one party. The
problem was solved with the GINO package and the authors accepted the results as
optimal ones. They also affirmed, without demonstrating, that the model could be easily
extended to solve other EOQ problems, such as requirements for the revenue level,
safety stock level and/or backorder level.
Fazel et al. (1998) developed a mathematical model to compare the total annual cost
for JIT and EOQ purchasing with all-units discount. The EOQ can be expected to remain
competitive for products with higher levels of demand. Also, the lower the holding cost
or ordering cost offered by the EOQ supplier, the lower will be the point of indifference
between the JIT and EOQ models. This makes EOQ the preferred method for a wider
range of demand and JIT; however, gains in competitiveness as the holding cost, or
ordering cost increase, or the product demand decreases.
Schniederjans and Cao (2000) made a comparison of the traditional EOQ with
all-units quantity discounts and JIT. This comparison was possible by using a modified
annual total cost function, which is the difference between the annual total cost for
ordering with the all-units discount EOQ formula and the total cost for ordering with the
JIT philosophy. Their conclusion about the two models is that the JIT system is always
better than any EOQ model if stockouts are not permitted.
Güder and Zydiak (2000) considered the problem of stocking inventories of multiple
products that share a common resource, like a warehouse space, where the vendor of the
products offers quantity discounts. For the classic multiple product inventory problem
JM2 with a single resource constraint and without quantity discounts, it is well-known that
10,3 a fixed-cycle approach is a cost-effective solution methodology, one that in some
instances is preferred to both independent cycle and non-stationary methods. In their
paper, they have demonstrated that a fixed-cycle heuristic approach can also be used to
solve the case where the supplier offers quantity discounts.
Min and Pheng (2005a) developed a JIT purchasing threshold value model for ready
346 mixed concrete suppliers to decide whether or not to switch from an EOQ approach to a
JIT purchasing approach for raw materials, when a price discount is offered. Through a
case of study they could demonstrate this threshold and that the JIT purchasing
approach is not always preferred to the EOQ approach in managing materials
procurement, even when the JIT operation can experience and capitalize on physical
plant space reduction.
Later, Min and Pheng (2005b) expanded their model on two new concepts that focus
on, namely, the annual holding capacity of an inventory facility, and the break-even
point between the annual holding capacity and the EOQ–JIT cost indifference point. The
same case of study was used.
Moussourakis and Haksever (2008) presented a zero– one mixed-integer
mathematical model for an EOQ problem with all-units quantity discounts. The model
provides an approximate optimal solution and the authors presented results of
computer implementation for a set of randomly generated problems involving up to 100
products.
Lin (2010) studied an EOQ problem with imperfect quality in a pull system where the
buyer is based in the concept of the “powerful buyer”. Numerical examples and an
algorithm are given throughout the paper, and the author proves that the model is
reasonable and can be solved with a very efficient algorithm with less iteration than the
procedures suggested in the OR/OM textbooks.
Konur and Toptal (2012) extended the work of Toptal (2009) and formulated a model
for the replenishment decisions under a transportation stepwise freight cost structure
and all-units quantity discounts with economies and diseconomies of scales. The
authors affirm that their model can find an optimal solution.
Wu et al. (2013) expanded Min and Pheng’s (2005b) model that compared the
inventory costs of purchasing under an EOQ with a price discount system and a JIT
order purchasing system, considering Schniederjans and Cao (2000) and Fazel et al.
(1998), concepts about the EOQ-JIT system trade-off. The same Min and Pheng (2005b)
case of study was used.

4.3 All-units discount – buyer–supplier perspective – time-phased

Sana and Chaudhuri (2008) proposed to model the buyers’ profit maximizing strategy
when confronted with supplier’s trade offer of credit and price discount (on all units) on
the purchase of products. Their paper was the first one to discuss the generalization of
the EOQ model for various types of deterministic demands for a retailer under discount
rate and permissible delay approach.
Transchel and Minner (2008) considered an EOQ model where the supplier offers an
all-units quantity discount for a price-sensitive buyer. They developed algorithms that
determine the optimal pricing and replenishment policy and show how quantity
discounts not only influence the purchasing strategy but also the pricing policy.
4.4 All-units discount – buyer–supplier perspective – non-time-phased Lot size with
Xu et al. (2000) constructed a model that considers a multiproduct dynamic lot size quantity
model, where a joint business volume discount is applied for all products purchased
whenever the total dollar value of an order reaches a certain level. The authors take in
discounts
consideration two types of discounts, the first one is the classical units quantity discount
model and the second one is referred as the joint business volume discount, involving
buyers’ and sellers’ perspectives, ordering quantities in advance with contracts or 347
ordering depending on the demand. An algorithm was developed with a heuristic
solution for the proposed model.
Sivarak and Thomopoulos (2006) formulated a model for a multiproduct discount
problem and presented a heuristic that determines the replenishment of all products.
The discount given by the supplier is an all-units discount scheme.
Shin and Benton (2007) developed a quantity discount model for supply chain
coordination between a supplier and a buyer, keeping intact the economic lot sizes for
both the buying and selling firms. The proposed buyer’s risk adjustment model allows
the supplier to offer discounts that capitalize on the original economic lot sizes and share
the buyer’s risk of temporary overstocking under uncertain demand. If the discount is
set too high, the supplier experiences, on average, decreased profits, and if the discount
is set too low, the buyer will ignore the supplier’s discount policy.
Toptal (2009) formulated a model for the replenishment decisions under a general
replenishment cost structure that includes a generalized transportation costs and
all-units quantity discounts. For the author, the quantity discounts are one of the
mechanisms to achieve coordination in supply chains and to share the extra savings due
to coordination. A quantity discount with multiple breakpoints may prevail under the
existence of multiple buyers with the purpose of price discrimination.
Krichen et al. (2011) considered an EOQ problem involving a single supplier that
offers quantity discounts and allows retailers to delay payments. The authors proposed
a solution approach that generates stable coalition structures for the retailers taking into
account the delay in payments and the discount quantity offered by the supplier.
Through a simulation, the authors showed the effectiveness of their approach in solving
large-scale problems and the effect of permissible delay in payments versus discount
quantity on the coalition formation problem.

4.5 Incremental discount – buyer perspective – time-phased

Rubin and Benton (2003a) considered in their paper, the purchasing decisions facing a
buying firm which receives incrementally discounted price schedules for simultaneous
order quantities for multiple products, offered with separate incremental discounts and
subject to joint resource constraints such as budgets and space limitations. An
algorithm was developed and demonstrated along 12 numerical examples, using a
combination of Lagrangian relaxation and partial enumeration when needed.

4.6 Incremental discount – buyer perspective – non-time-phased

Haksever and Moussourakis (2008) presented a zero– one mixed-integer mathematical
model for an EOQ problem with incremental quantity discounts. The model provides an
approximate optimal solution and the authors presented results of computer
implementation for a set of randomly generated problems involving up to 150 products.
JM2 4.7 Incremental discount – buyer–supplier perspective – time-phased
10,3 No records were found in our research; however, Benton and Park (1996) have found one
work related to this area.

4.8 Incremental discount – buyer–supplier perspective – non-time-phased

Open area.
348
4.9 Both discounts – buyer perspective – time-phased
Bai and Xu (2011) considered a multi-supplier EOQ problem in which the retailer
replenishes his inventory from several suppliers. Each supplier may offer all-units or
incremental quantity discounts. Optimal algorithms based on dynamic programming
were designed.

4.10 Both discounts – buyer perspective – non-time-phased

Tersine et al. (1995) propose a composite EOQ model that could be used for some special
conditions encountered for EOQ with quantity and freight rate discounts (named in their
work as dual discounts). Their model can be mounted or unmounted to adapt to a large
range of problems, from the simple original EOQ formula to more complex situations
with incremental quantity and incremental freight discounts associated with shipping
costs, inspection costs, in-transit holding costs, backorder costs, finite replenishment
and quality rejects. The authors had proposed an algorithm, to solve more complex
situations with an optimal solution.
Burke et al. (2006) consider the situation where the total quantity to be procured for a
single period is known by the firm and communicated to the supplier set. In response to
this communication, each supplier quotes a price and a capacity limit in terms of a
maximum quantity that can be supplied to the buyer. Based on this information, the
buyer makes a quantity allocation decision among the suppliers and corresponding to
this decision is the choice of a subset of suppliers who will receive an order. Data from a
major office products retailer were used to illustrate the resulting sourcing strategies,
given different pricing schemes and capacity limitations of suppliers.
Mahmood and Kindi (2006) presented EOQ models with a discounted price to obtain
the optimal ordering policy during the sales period for five different models:
• Model 1 – Coincidence of sale period with replenishment time.
• Model 2 – Non-coincidence of sale period with replenishment time.
• Model 3 – Sale period is longer than a cycle.
• Model 4 – Discounted price as a function of the special ordering quantity.
• Model 5 – Incremental discount.

Model 1 is the most simple, because the buyers can acquire products with all-units
discounts as soon as the inventory is empty. Model 2 is the same as the Case 1, but the
all-units offer occurs before the inventory is empty, so the buyer has the chance to buy
more units while some products are still available in the stock. Model 3 has the same
characteristics of the Model 2; however, the special offer can exist for many cycles and
does not need to coincide with the replenish points of the products. Model 4 assumes
that, to encourage sales, the discount offered is a function of the quantity acquired, and
finally, Model 5 finds the optimal EOQ if incremental discounts are offered.
 Mendoza and Ventura (2008) studied the EOQ model with two modes of Lot size with
transportation, namely, truckload (TL) and less than truckload (LTL) carriers, by quantity
introducing all-units and incremental quantity discount structures into the analysis.
Exact algorithms are developed for each quantity discount structure to compute optimal
discounts
policies. In TL transportation, there is a fixed cost per load up to a given capacity. With
TL transportation, a company may use less than the capacity available and transport
this freight at the cost of a full load with a TL shipment. In LTL, the unit transportation 349
cost is constant and is used for small quantities.
Cárdenas-Barrón et al. (2009) developed a model to determine the optimal ordering
policies under an EOQ model with planned backorders when the supplier offers a
temporary one-time discount with a specified minimum quantity of additional units to
purchase. Both fixed and linear backorder costs are included. Three scenarios are
considered by the authors, the first one assumes that the discount is offered at a reorder
point and the discount applies to all units. The second one assumes that the discount is
also offered at a reorder point and an incremental discount is offered. The last scenario
assumes that the discount is offered between reorder points and the only the incremental
discount is offered. For all scenarios, the supplier states a minimum quantity of
additional units that must be purchased.

4.11 Both discounts – buyer–supplier perspective – time-phased

Open area.

4.12 Both discounts – buyer-supplier perspective – non-time-phased

Rubin and Benton (2003b) considered the use of price to influence a buyer’s purchasing
behavior. The vendor and buyer are independent economic entities, each maximizing its
own profit. The vendor’s objective is to set a price schedule that encourages the buyer to
raise its order quantity, increasing the vendor’s profits. Their model presents the jointly
quantity and price breaks that could maximize the vendor’s profit and minimizes the
buyer’s cost; a numerical example is given.

5. Results compilation and detailed information

This section presents the details of the models, which are: objective function, types of
constraints, types of discounts, developed algorithms, allowance of shortages or
multiproducts, demand pattern and buyer or buyer–supplier perspective. An analysis
about the main results is made and also a comparison between both literature reviews.
Table II give details about the models presented in the previous section and describes
the main features of the model presented in each paper.

5.1 Result analysis

Figure 3 is based on the analyses of the set of papers. As one can note in this figure, the
most researched type of discounts in the paper data set is the “all-units discounts”,
which cover 67.86 per cent of the analyzed papers. This scheme of discount has
characteristics that make it easier to find solutions than incremental discounts scheme.
And some models, that required very few adjustments in the objective function and/or
constraints, can handle both discounts, as can be seen in Figure 3, 25.00 per cent of all
researched papers produced models for both types of discounts. A little percentage of
papers, about 7.14 per cent, was for models with only incremental discount.
JM2 Authors Model features Model characteristics
10,3
Tersine et al. Objective function: The objective function is composed by Discount: Both
(1995) one kind of quantity discount (all-units, incremental or Shortage: Allowed
none) and one type of freight discount (all weighted, Algorithm: Yes (optimal)
incremental or none), with a total of nine different types of Multiproduct: Not allowed
objective functions, and which one can be adapted to Demand pattern: Non-
350 allow shortages time-phased
Constraints: None, all variations are made directly in the Perspective: Buyer
objective function
Lam and Wong Objective function: The objective function is the Discount: All-units
(1996) satisfaction level for the vendor and buyer based on their Shortage: Not allowed
respective cost functions Algorithm: Yes (optimal)
Constraints: The constraints are the cost functions of the Multiproduct: Not allowed
vendor and the cost function of the buyer Demand pattern: Non-
time-phased
Perspective: Buyer
Fazel et al. (1998) Objective function: The objective function is composed by Discount: All-units
difference between the total annual cost using an EOQ Shortage: Not allowed
system (ordering cost ⫹ holding cost ⫹ purchasing cost) Algorithm: None
and the total cost of the JIT system Multiproduct: Not allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective: Buyer
Schniederjans Objective function: The objective function is composed by Discount: All-units
and Cao (2000) difference between the total annual cost using an EOQ Shortage: Not allowed
system (ordering cost ⫹ holding cost⫹ purchasing cost) Algorithm: None
and the total cost of the JIT system (purchasing cost– Multiproduct: Not allowed
facility cost reduction) Demand pattern: non-
Constraints: None time-phased
Perspective: Buyer
Xu et al. (2000) Objective function: The objective function is composed Discount: All units
by: ordering cost ⫹ holding cost ⫹ purchasing Shortage: Not allowed
cost–discount cost Algorithm: Yes (near-
Constraints: The constraints are composed by: optimal)
The balance between the demand and the inventory. Multiproduct: Allowed
A binary constraint that activates the setup cost if any Demand pattern: Non-
product is purchased. time-phased
A binary constraint that activates the quantity of Perspective:
products that are purchased under the discount condition. Buyer–supplier
A binary constraint that certifies that all units bought
have the discount price.
A constraint that indicates that there are no initial and
final inventories.
Non-negativity and discrete constraints
Guder and Objective Function: The objective function is composed Discount: All-units
Zydiak (2000) by: the ordering cost ⫹ holding cost ⫹ purchasing cost Shortage: Not allowed
Constraints: Resource constraints Algorithm: Yes (near-
optimal)
Multiproduct: Allowed
Demand pattern: Non-
Table II. time-phased
Paper’s information Perspective: Buyer
and model features (continued)
Authors Model features Model characteristics
Lot size with
quantity
Rubin and Objective function: The objective function is composed by Discount: Incremental
Benton (2003a) a convex function for incremental discounts with the EOQ Shortage: Not allowed
discounts
costs: ordering cost ⫹ holding cost ⫹ purchasing cost Algorithm: Yes (optimal)
Constraints: Budget and space constraints. The model Multiproduct: Allowed
also allows the addition of more constraints if needed Demand pattern: Non-
time-phased 351
Perspective:
Buyer–supplier
Rubin and Objective function: The objective function is composed by Discount: Both
Benton (2003b) the vendor’s: ordering cost ⫹ production cost ⫹ holding Shortage: Not allowed
cost Algorithm: None
Constraints: The constraints are composed by: Multiproduct: Not allowed
An attractive enough quantity discount to the buyer. Demand pattern: Non-
The quantity discount impacts in the vendor cost. The time-phased
vendor needs at least to recover the variable costs. Perspective:
A restraint that indicates that the optimal quantity under Buyer–supplier
discounts is bigger than the optimal quantity without
discounts
Min and Pheng Objective function: The objective function is composed Discount: All-units
(2005a) by: ordering cost ⫹ holding cost ⫹ purchasing cost ⫹ Shortage: Not allowed
quantity discount–purchasing JIT system–any benefits Algorithm: None
from the JIT system ordering (space saving, etc.) Multiproduct: Not allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective: Buyer
Min and Pheng Objective function: The objective function is composed Discount: All-units
(2005b) by: ordering cost ⫹ holding cost (revised) ⫹ purchasing Shortage: Not allowed
cost ⫹ quantity discount–purchasing JIT system–any Algorithm: None
benefits from the JIT system ordering (space saving, etc.) Multiproduct: Not allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective: Buyer
Maiti et al. (2006) Objective function: The objective function (maximization Discount: All units
of the profit) is composed by: sales–(transportation cost ⫹ Shortage: Not allowed
advertisement cost ⫹ holding cost ⫹ purchasing cost ⫹ Algorithm: Yes (GA
ordering cost) optimal)
Constraints: Space and resource constraint Multiproduct: Allowed
Demand pattern: Time-
phased
Perspective: Buyer
Mahmood and Objective function: The objective function is composed Discount: Both
Kindi (2006) by: ordering cost ⫹ holding cost ⫹ purchasing cost. Shortage: Allowed
There are five adaptations of the objective function when Algorithm: None
the one-time discount may occur Multiproduct: Not allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective: Buyer
(continued) Table II.
JM2 Authors Model features Model characteristics
10,3
Burke et al. Objective function: The objective function is composed Discount: Both
(2006) by: ordering cost ⫹ holding cost ⫹ purchasing cost Shortage: Not allowed
Constraints: Capacity constraint Algorithm: Yes (near-
optimal)
Multiproduct: Allowed
352 Demand pattern: Non-
time-phased
Perspective: Buyer
Sivarak and Objective function: The objective function is composed Discount: All units
Thomopoulos by: ordering cost ⫹ holding cost ⫹ purchasing cost Shortage: Not allowed
(2006) Constraints: None Algorithm: Yes (near-
optimal)
Multiproduct: Allowed
Demand pattern: Non-
time-phased
Perspective:
Buyer–supplier
Shin and Benton Objective function: For an initial pre-calculated EOQ, the Discount: All-units
(2007) model determines the optimal quantity discount offer Shortage: Not allowed
Constraints: They are composed by: Algorithm: Yes (optimal)
The line segment approximating the number of orders Multiproduct: Not allowed
curve for the discount intervals for each product. Demand pattern: Non-
Two constraints together, that make certain that line time-phased
segment with the optimal solution will be chosen. Perspective:
The number of orders for each product. Buyer–supplier
The quantities to order in each discount segment.
The total quantity for each product.
The total amount to be paid for each product.
The average price for each product.
A constraint that makes sure that if independent cycle
solution is selected, the total investment in inventory does
not exceed the budget.
A set of constraints that chose the best cycle solution.
A set of constraints that determine the length of the order
cycle and the order size.
A set of constraints that ensure if a common cycle has
been chosen, the cycle times of all products will be equal;
otherwise, these constraints will be redundant
Moussourakis Objective function: The objective function is composed Discount: All-units
and Haksever by: the sum of the objective functions for all products and Shortage: Not allowed
(2008) consists of three components: ordering cost ⫹ holding Algorithm: None
cost ⫹ purchasing cost Multiproduct: Allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective: Buyer
Table II. (continued)
Authors Model features Model characteristics
Lot size with
quantity
Haksever and Objective function: The objective function is composed Discount: Incremental
Moussourakis by: the sum of the objective functions for all products and Shortage: Not allowed
discounts
(2008) consists of three components: ordering cost ⫹ holding Algorithm: None
cost ⫹ purchasing cost Multiproduct: Allowed
Constraints: They are composed by: Demand pattern: Non-
The line segment approximating the number of orders time-phased 353
curve for the discount intervals for each product. Perspective: Buyer
Two constraints together, that make certain that line
segment with the optimal solution will be chosen.
The number of orders for each product.
The quantities to order in each discount segment.
The total quantity for each product.
The total amount to be paid for each product.
The average price for each product.
A constraint that makes sure that if independent cycle
solution is selected, the total investment in inventory does
not exceed the budget.
A set of constraints that chose the best cycle solution.
A set of constraints that determine the length of the order
cycle and the order size.
A set of constraints that ensure if a common cycle has
been chosen, the cycle times of all products will be equal;
otherwise, these constraints will be redundant
Panda et al Objective function: The model maximizes the total profit Discount: All-units
(2008) per unit time for pre and post-deterioration discounts on (deteriorated only)
selling price, or only post-deterioration discount on unit Shortage: Not allowed
selling price, or no deterioration discount on unit selling Algorithm: None
price, or for instant deterioration, and finally for only Multiproduct: Not allowed
fixed lifetime products Demand pattern: Time-
Constraints: The constraints control the time of phased
deterioration and depend on the type of the objective Perspective: Buyer
function
Sana and Objective function: The objective function is composed by Discount: All units
Chaudhuri (2008) seven different formulations of deterministic demands Shortage: Not allowed
(namely, constant, linearly varying with time, Algorithm: None
quadratically varying with time, exponentially varying Multiproduct: Not allowed
with time, stock-dependent, price-dependent, both stock- Demand pattern: Time-
and price-sensitive), which maximize profit phased
Constraints: None Perspective:
Buyer–supplier
Transchel and Objective function: The objective function is based in Discount: All-units
Minner (2008) three basic scenarios with coordinated lot size Shortage: Not allowed
determination Algorithm: Yes (optimal)
Constraints: None Multiproduct: Not allowed
Demand pattern: Time-
phased
Perspective:
Buyer–supplier
(continued) Table II.
JM2 Authors Model features Model characteristics
10,3
Mendoza and Objective Function: The objective function is composed Discount: Both
Ventura (2008) by: transportation costs ⫹ quantity discounts Shortage: Not allowed
Constraints: None Algorithm: Yes (optimal)
Multiproduct: Not allowed
Demand pattern: Non-
354 time-phased
Perspective: Buyer
Cárdenas-Barrón Objective function: The objective function is composed Discount: Both
et al. (2009) by: ordering cost ⫹ holding cost ⫹ backordering cost ⫹ Shortage: Allowed
purchasing cost Algorithm: None
Constraints: None Multiproduct: Not allowed
Demand pattern: Non-
time-phased
Perspective: Buyer
Toptal (2009) Objective function: The objective function is the Discount: All units
maximization of profit function of the retailer at Shortage: Not allowed
wholesale price level Algorithm: None
Constraints: None Multiproduct: Not allowed
Demand pattern: Non-
time-phased
Perspective:
Buyer–supplier
Lin (2010) Objective function: The objective function is composed by Discount: All units
minimizing the expected “relevant” cost: ordering cost ⫹ Shortage: Not allowed
holding cost ⫹ holding cost for defective products ⫹ Algorithm: Yes (optimal)
purchasing cost ⫹ screening cost ⫹ the receiving cost per Multiproduct: Not allowed
shipment Demand pattern: Non-
Constraints: None time-phased
Perspective: Buyer
Krichen et al. Objective function: The objective function is composed Discount: All units
(2011) by: discount and delays in payments ⫹ holding and Shortage: Not allowed
ordering costs ⫹ purchasing cost ⫹ the annual Algorithm: Yes (optimal)
purchasing cost Multiproduct: Not allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective:
Buyer–supplier
Bai and Xu Objective function: The objective function is composed Discount: Both
(2011) by: the cost of ordering a certain number of units (with Shortage: Not allowed
incremental or all-units quantity discounts) from a Algorithm: Yes (optimal)
specific supplier in period t ⫹ the holding cost in period t Multiproduct: Not allowed
Constraints: They are composed by: Demand pattern: Time-
The demand of a period t must be satisfied. phased
The demand must be formed by the sum of units of a set Perspective: Buyer
of suppliers
Table II. (continued)
Authors Model features Model characteristics
Lot size with
quantity
Konur and Objective function: The objective function is the Discount: All units
Toptal (2012) maximization of profit function of the buyer at wholesale Shortage: Not allowed
discounts
price level Algorithm: Yes (optimal)
Constraints: None Multiproduct: Not allowed
Demand pattern: Non-
time-phased 355
Perspective: Buyer
Wu et al. (2013) Objective function: The objective function is composed Discount: All units
by: ordering cost ⫹ holding cost ⫹ purchasing cost ⫹ Shortage: Not allowed
quantity discount–purchasing JIT system–any benefits Algorithm: None
from the JIT system ordering (space saving, etc.) Multiproduct: Not allowed
Constraints: None Demand pattern: Non-
time-phased
Perspective: Buyer Table II.

Figure 3.
Relative frequency of
characteristics

This phenomenon is also perceived in the case of the allowance or not, of shortages and
the single or multiproduct environment. The allowance of shortages increases the
difficulty to solve EOQ problems, only 10.71 per cent of the analyzed papers allowed
shortages. The single-product model may be difficult to adapt to a multiproduct
JM2 equivalent and the multiproduct case increases too, the difficulty to find optimal
10,3 solutions. Consequently, only 28.57 per cent of all papers allowed the multiproduct case,
the others, 71.43 per cent, were for single products only. Finally, 46.42 per cent of all
papers developed some sort of algorithm to solve their respective models more quickly,
35.71 per cent were optimal algorithms and 10.71 per cent were near-optimal.

356 5.2 Comparing with Benton and Park’s (1996) results

Table III shows a comparison among the data reported by Benton and Park (1996) and
the results from the present research. Analyzing the data in Table III, the time-phased
demand pattern was found in a total of four papers involving only all-units discount, two
were for the buyer perspective and two for the buyer–supplier perspective. No
contributions were found for incremental discount case with the buyer (however, there
is one past contribution) or buyer–supplier perspective and one paper for both discounts
with the buyer perspective. With the non-time-phased demand pattern and buyer
perspective, a total of 10 papers involving only all-units discount, one paper with
incremental discount and five papers that dealt with both discounts were found. With
the buyer–supplier perspective, a total of five papers involving only all-units discount,
one paper with incremental discount and one paper with both discounts were found. But
neither this work, nor Benton and Park’s work, could find papers with incremental or
both discounts, buyer–supplier perspective and time-phased demand pattern. So, this
subject is still an open area for new researchers.

6. Conclusion
The main goal of the research was achieved: to identify the state of the art on the EOQ
with discounts, through a literature review from the period of 1995 to 2013, updating the
work of Benton and Park (1996). The analyzed papers were found through a research in
the Scopus and ISI Web of Knowledge scientific databases, which assured the relative
significance of the chosen set of papers. Benton and Park’s paper was used as the
starting point for the research to guarantee a solid basis and a continued analysis trough
time about this specific field of research, but newer advances reported in the recent
literature forced an inclusion of more aspects to explore, such as a more accurate
analysis on shortages, multiproduct capacity, details about the model objective function
and constraints and the development of algorithms to find optimal or near-optimal
solutions.

Type of discounts Buyer Buyer–supplier Buyer Buyer–supplier

All-units discount
Benton and Park 13 Open area 14 11
Present work 2 2 (new) 10 5
Incremental discount
Benton and Park 1 Open area 4 4
Present work No records Open area 1 1
Table III.
Comparison of Both
published works Benton and Park 1 Open area 1 Open area
with economic order Present work 1 Open area 5 1 (new)
discounts Demand pattern Time-phased Non-time-phased
A positive trend in the number of papers produced per year was noted, and main Lot size with
possible cause is due to works comparing, JIT philosophy and the EOQ with quantity quantity
discounts policy. We also noted an increasing number of researches developing discounts
algorithms to find optimal or near-optimal solutions.
Two new contributions were found in this review that, previously, were considered
an open area in Benton and Park’s work, a model with the all-units discount type,
time-phased demand pattern and with the buyer–supplier perspective. The other 357
contribution was a model with both types of discount, non-time-phased demand pattern
and with the buyer–supplier perspective. However, two areas remain untouched: the
models with only the incremental discount and the models with both discounts with
time-phased demand pattern and the buyer–supplier perspective.
The literature review could enlighten the possible motives that block the
development of models with these characteristics. It is know that shortages,
time-phased demand, incremental discounts and multiproduct cases increase the
difficulty to solve EOQ problems, and the scarce number of papers with this type of
models proves this theory. The open areas contain the time-phased demand and the
incremental discount elements that make the development of models in the literature a
bit more difficult. Finally, this work with the 28 analyzed papers could point out the state
of the art and the tendencies on EOQ modeling with discounts, and it may serve as a
starting point to any researcher interested in formulating new works or reviews on this
field.

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About the authors

Valdecy Pereira is a Post-Doc Researcher at the Universidade Federal Fluminense University
(UFF) in Brazil. He received his DSc degree in production engineering from UFF in 2012. His
research interests include decision analysis, multi-criteria decision aid, statistic, production
planning and control. Valdecy Pereira can contacted at: valdecypereira@yahoo.com.br
Helder Gomes Costa is an Associate Professor at Universidade Federal Fluminense University
(UFF) in Brazil since 2006. He received his PhD degree in mechanical engineering from PUC-Rio.
His research interests include decision analysis, multi-criteria decision aid, organizational
performance, production planning and control. Helder Gomes Costa is the corresponding author
and can be contacted at: helder.hgc@gmail.com

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