The Economic Order Quantity model revisited: an Extended Exergy Accounting approach Hussam Jawad a , Mohamad Y. Jaber a, * , Maurice Bonney b a Department of Mechanical and Industrial Engineering, Ryerson University, Toronto, ON M5B 2K3, Canada b Nottingham University Business School, University of Nottingham, Nottingham NG8 1BB, UK article info Article history: Received 22 December 2013 Received in revised form 5 May 2014 Accepted 9 June 2014 Available online xxx Keywords: Inventory Extended exergy accounting Cumulative exergy consumption Sustainability Environment abstract The Economic Order Quantity, EOQ, model has been popular among academicians and practitioners for decades. Despite the many variants of the EOQ that have appeared in the literature to fine-tune it to reality, it still has limitations. A major one is that it does not take into account the hidden costs inherent in inventory systems. Some of these costs relate to sustainability issues including environmental, social labor, and economic effects. This paper considers some of these costs, referred to as the exergetic costs, and estimates them using the Extended Exergy Accounting, EEA, approach. Extended Exergy Accounting assigns equivalent exer- getic values to capital, labor and environmental remediation costs of a system. The analysis combines the classical exergy analysis with the sustainability factors, which are the labor, capital and environment. The paper uses an exergetic model to determine the EOQ inventory policies for three firms operating in the USA, Germany and China. The results show that the EOQ is different for the three firms because the equivalent exergy of capital, labor and environment remediation costs is different in each country. © 2014 Elsevier Ltd. All rights reserved. 1. Introduction The classic Economic Order Quantity (EOQ) minimizes the sum of two conflicting inventory costs: ordering (setup) and holding costs. The EOQ model of Harris (1990); a reprint of the 1913 paper) was the first scientific treatment of inventory systems. Thus, it is considered to be a fundamental model of inventory and logistics management. Since its inception, the EOQ model has undergone extensive investigation and development to fit various re- quirements (e.g., Schwaller, 1988; Drezner et al., 1995; Chen and Min, 1991). The applicability of the EOQ model has been queried despite its wide use. Woolsey (1990) criticized the classical EOQ model and recommended business firms to think more before us- ing it. He totally disagreed with the EOQ assumptions (see Section 3) regarding constant price, demand and average quantity in stock. Selen and Wood (1987) stated that the EOQ model produces poor results because of poor definition and estimation of its input pa- rameters. They noted that the difficulty in calculating the variable set-up and holding costs was because the financial accounting rules were not examined. Zangwill (1987) showed that the EOQ with zero inventory (ZI) can be mistaken in its assertion that inventory re- duces when set-up time and/or cost reduces. The classical EOQ model also has other limitations. It neglects some aspects of practical situations. For instance, it assumes that all units of a specific product or the material used in producing it are of perfect quality with steady demand (Khan and Jaber, 2011). Salameh and Jaber (2000) modified the classical EOQ model to consider the imperfect quality of products. They showed that the size of the EOQ increases as the average per- centage of imperfect quality items increases. Readings on in- ventory and quality are found in Wright and Mehrez (1998) and Khan et al. (2011). Facing pressures from governments, customers and other stakeholders, business firms have realized that there is a need to adopt better strategies and tools to minimize the negative envi- ronmental and social effects that their operations produce, while seeking economic profitability. Bonney and Jaber (2011) presented a detailed discussion and analysis of the need to design responsible inventory systems. They examined the importance of inventory planning to the environment. For illustrative purposes, they developed an analytical inventory model, a variation of the EOQ, and concluded that items should be ordered in larger quantities less frequently than the classical EOQ model recommends in order to reduce the transportation cost and, consequently, CO 2 emissions. * Corresponding author. Tel.: þ1 416 979 5000x7623; fax: þ1 416 979 5265. E-mail addresses: mjaber@ryerson.ca, myjaber@gmail.com (M.Y. Jaber). Contents lists available at ScienceDirect Journal of Cleaner Production journal homepage: www.elsevier.com/locate/jclepro http://dx.doi.org/10.1016/j.jclepro.2014.06.079 0959-6526/© 2014 Elsevier Ltd. All rights reserved. Journal of Cleaner Production xxx (2014) 1e10 Please cite this article in press as: Jawad, H., et al., The Economic Order Quantity model revisited: an Extended Exergy Accounting approach, Journal of Cleaner Production (2014), http://dx.doi.org/10.1016/j.jclepro.2014.06.079