Optimal Economic Production Quantity Policies Considering the Holding Cost of Deteriorating Raw Materials under Two-Level Trade Credit and Limited Storage Capacity

Abstract

The traditional economic production quantity (EPQ) model assumes that raw materials are supplied timely. But during the production and transport process of raw materials could change the holding cost of raw materials, therefore, they should be considered in the total relevant cost. [1] combined [2]’s concept of holding cost of raw materials and [3]’s two-level trade credit and limited storage capacity model to develop innovative and detailed EPQ model that consider the holding cost of non-deteriorating raw materials. It’s closer to the real world. However, in reality, most of the raw materials are deteriorating; it also needs to be considered. Therefore, this research extends [1]’s model to consider the holding cost of deteriorating raw materials. We use cost minimization to develop the total relevant cost and determine the optimal cycle time by four theorems. Finally, we use sensitivity analyses to investigate the effects of the parameters on ordering policies.