An inventory model for deteriorating items with inflation induced demand and exponential partial backorders—a discounted cash flow approach

Abstract

Now-a-days the financial situation has changed at different countries due to inflation i.e. time value of money. As inflation increases the value of money goes down and it erodes the future worth of savings and forces one for more current spending. Usually, these spending are on peripherals and luxury items that give rise to demand of these items. In this paper, we intend to develop an inventory model for deteriorating items under inflationary conditions using a discounted cash flow (DCF) approach over a finite planning horizon. The demand rate is a function of inflation. In real life systems, some but not all customers will wait for the next order to satisfy their demands during stockout period. This situation is modeled by the consideration of partial backordering under negative exponential distribution of waiting time. An algorithm is developed to find optimal policy and the sensitivity analysis is studied with the help of numerical examples.