Abstract
An analytical approach is discussed to study the effect of varying marketing policies/parameters on the behaviour of a two-stage production/inventory system. In most manufacturing organizations, the production system cannot be considered to consist of independent sub-systems (such as inventory, marketing, finance, etc.). Realizing the practical relevance of the impact of various marketing instruments on the economic production quantity (EPQ) of a production system, a mathematical model has been developed here to estimate the values of EPQs for different marketing situations. The basic criterion considered here to optimize the batch size is the minimization of total annual variable cost. The total annual variable cost consists of cost elements such as set-up cost, and in-process and finished-product inventory costs. A numerical example is given to illustrate the application of the model developed.
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