Deteriorating inventory with preservation technology under price- and stock-sensitive demand

Abstract

In this paper, we formulate and solve an Economic Production Quantity inventory model with deteriorating items. To reduce the rate of deterioration, we apply a preservation technology and calculate the amount for preservation technology investment. The demand function is dependent on stock-level and price. We assume that the production rate is linearly dependent on time, based on customer demand. Shortages are allowed in our consideration, and the shortages amount is partially backlogged for the interested customers for the next slot. The effect of inflation is incorporated, which indicates a critical factor in modern days. Our main objective is to find the optimal cycle length and the optimal amount of preservation technology investment by adjusting the inflation rate with maximizing the profit. A numerical example is provided to illustrate the features and advances of the model. A sensitivity analysis with respect to major parameters is performed in order to assess the stability of our model. The paper ends with a conclusion and an outlook at possible future directions.