Deteriorating inventory model with variable holding cost and price dependent time varying demand

Abstract

Demand of many items begins to decrease with time due to obsolescence, quality degradation, competition etc. In marketplace new product is generally introduced at maximum retail price and retailers then lower the price with course of time due to competition to increase their demand. This increases the sales and saves some costs. This article tries to incorporate above scenario to develop a novel inventory model with selling price dependent time varying demand, variable holding cost and constant obsolescence or deterioration rate. Selling price also decreases linearly with time. Ordering cost, purchase cost, variable holding cost, deterioration cost and selling price are taken together to construct the total average profit function, which is maximized to obtain the optimal cycle time, optimal lot size and value of optimum average profit function. Sensitivity analysis is performed to establish that our model is robust and important managerial implications are put forward to demonstrate the applicability of the model.