A two-warehouse inventory model with credit policy and inflation effect

Abstract

This study investigates a non-instantaneous deteriorating two-warehouse inventory problem with allowable delay payments under inflation. The objective is to maximize the total profit per unit of time by determining the optimal order quantity, the product’s selling price, and the business cycle length. We developed a mathematical model to address this inventory optimization problem. Built on top of the available literature, we comprehensively considered credit policy, inflation, price- and time-dependent demand, and partial backlogged shortage in this study. By changing some parameters, we demonstrated that our model is a generalized version of several specific inventory models presented in the literature. We performed numerical examples to validate our model. Additionally, we carried out a sensitivity analysis to examine the impact of several parameters on the optimal solutions. The results highlight that if the fixed part of the demand decreases, the product’s selling price and the total profit decrease. In addition, if the setup cost decreases, the total profit increases, and vice versa. The results also demonstrate that the unit purchase cost and inflation significantly affect the average profit. To conclude, our study can potentially help firms (i) reduce the total inventory system’s setup cost, (ii) optimize unit purchase cost, and (ii) understand the influence of inflation.