Economic production quantity with inventory rationing for a decaying item

Abstract

In this paper, we develop an economic production quantity (EPQ) model with inventory rationing for a decaying item under deterministic conditions. Two demand classes are considered, and inventory rationing is implemented by introducing a critical level: when stock is below the critical level, low-priority demand is rejected. The cost model is developed considering two situations, depending on whether the critical level is in the inventory build-up phase or in the inventory depletion phase. We then formulate the optimization problem and propose a solution procedure. Numerical experiments are finally carried out to demonstrate the benefits of implementing inventory rationing.