EOQ with a correlated binomial supply

This paper considers a variant of the economic order quantity (EOQ) model under random supply. A binomial supply model is adopted where every item received is of imperfect quality with the same probability. We study the realistic case where the qualities of items in an order are correlated and draw useful insights, the most interesting of which is that correlation decreases the order size. Several practical correlation patterns are investigated and discussed. We also show that several commonly used models in the literature can be represented by an equivalent correlated binomial supply model.