Optimal inventory policies for deteriorating complementary and substitute items

Abstract

The optimal production for an inventory control system of deteriorating multi-items where items are either complementary and/or substitute is formulated with a resource constraint. Here, the production function is unknown and considered as a control variable. Also, the deterioration rates of the items are either stock dependent or constant. The demand is stock dependent, shortages are not allowed and deteriorated items are salvaged. The total profit, which consists of the sales proceeds, production cost, inventory holding cost, salvage value, is formulated as a Pontryagin's Optimal Control problem for both steady and transient states and evaluated using Taylor's theorem, generalised reduced gradient technique and optimal control theory satisfying the Generalised Legendre conditions. The model is formulated in general form for n-items, and in particular, is illustrated with three items for some numerical data. The optimum results are presented both in tabular form and graphically.