Integrating the economic production model with deteriorating raw material over multi-production cycles

Abstract

This paper considers an Economic Production Quantity (EPQ) model with deteriorating raw material and investigates the impact of deterioration on the production process. The EPQ base case with no deterioration is presented where raw material is ordered for multiple production cycles. We present the differential equations to calculate the on-hand inventory of raw material and present closed-forms expressions for the required order of raw material to result in a desired amount of effective raw material per order cycle. Closed-form expression for the total profit per unit time is obtained and we solve for the optimal production quantity of finished product per production cycle and the order quantity of raw material. We present numerical examples where we compare our model to a system which ignores the impact of deterioration and results in shorter production cycles due to an insufficient amount of effective raw material.