Optimal production policy for decaying items with decreasing demand

Abstract

In this paper an infinite-horizon inventory problem is considered in which items are decaying at a constant rate and the demand rate follows an exponentially decreasing function. An analytical model based on dynamic programming is developed from which closed-form optimal results are derived. Earlier results for a similar problem without item deterioration can be obtained as a special case of our model. A special condition which establishes the general validity of the optimal results is also presented. Finally an illustrative example is provided to demonstrate how the theoretical results can be applied to solve a given problem.