Dual Warehouse Inventory Management of Deteriorating Items Under Inflationary Condition

Abstract

In the present highly cutthroat global business environment, to uphold in the inflationary market, many times the retailer orders and stores large stock to get the edge over his competitors. At times, the size of the order is even larger than his storage capacity. Under such a situation, the retailer opts for renting the warehouse as an alternative to capacity augmentation. Considering the importance of such a scenario, the present research work develops the optimal replenishment policy for deteriorating items under inflationary conditions over a finite planning horizon in a two-warehouse facility using a discounted cash flow (DCF) approach. A DCF approach is used to estimate the value of an investment based on its future cash flows and attempts to figure out the financial implication of the opportunity cost in inventory analysis. The present model jointly optimizes the frequency of replenishments by minimizing the retailer’s total cost. Conclusively, a numerical example along with sensitivity analysis is carried to demonstrate the model characteristics.