Chapter 2

A DETERIORATING INVENTORY
MODEL OF PERISHABLE ITEMS
UNDER TIME VARYING DEMAND
CONDITION
 Chapter – 2

A DETERIORATING INVENTORY MODEL OF

PERISHABLE ITEMS UNDER TIME VARYING
DEMAND CONDITION

2.1. Introduction

No business organization can run without Inventory. Harris [62] introduced the
classical economic order quantity (EOQ) model where demand is constant. After his work
a number of researches worked on this area and have developed different inventory model
to capture many appealing and real life situations.

In any business farm, it is very important task for a manager to preserve inventories
for smooth functioning of the organization. Particularly the manager has to take special
attention on Perishable items. Perishable items are those, that undergoes spoilage or decay
quickly i.e., those items become damage after a given time period. Also there are certain
Perishable items those need refrigeration. For example, vegetables, Fruits, Fish etc. must be
used under a very short span of time and these items need to be preserved under
refrigeration in order to preserve them for a few more days. Items like chemicals, electronic
goods, drugs, pharmaceuticals, photographic films, radioactive substances etc. also have
certain period of preservation and beyond that it expires. Also during normal storage period
the performance of some items deteriorated over time. There are different items like
hardware, steel, glassware and furniture etc., deteriorated very slowly and for
determination of economic lot size rate of deterioration is neglected. But in case of
perishable items rate of deterioration can’t be ignored.

In the beginning of the literature on inventory modeling, constant deterioration rates

were considered. S. Mukhopadhyay et. al. [95] addressed on the pricing and ordering
policies of perishable items. Aggarwal [1], Ghare and Schrader[46], Shah and Jaiswal
[122], Whitin [143] and others have discussed different inventory models having constant
demand under constant rate of deterioration and allowance of replenishment.
 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

A model was discussed by Dave and Patel[40] under time proportional demand
with suitable replenishment. Roy Chowdhury and Chaudhury [109] developed a model
with finite replenishment rate in which shortages are allowed. Dave [39] extended the
model of Dave et. al. [5] by taking shortages in inventory model. Bahari-Kashani [11]
developed a heuristic model under time-proportional demand and these models were dealt
with constant rate of deterioration.

Covert and Phillip [34] further considered a model under Weibull distribution for
two-parameter deterioration. Philip [103] extended the model to three -parameter Weibull
distribution and R. Misra [90] considered a model for two-parameter Weibull distribution
deterioration with finite rate of replenishment. Deb and Chaudhury [42] took a
deteriorating time-proportional model with finite rate of manufacture. It is observed that in
all the models discussed earlier the rate of demand has been considered to be uniform with
time.

A range of models have been projected for constant demand rate with constant
holding cost. Teng et al. [129] worked with an optimal EOQ model with ordering and
pricing policy where delay in payments was allowed and selling price was inevitably
higher than purchase cost.

Vander Veen [135] established an EOQ model where the holding cost was assumed
as a nonlinear function of inventory. Weiss [141] experimented conventional EOQ model
where holding cost per unit customized as a nonlinear function of the length over time. Goh
[52] presented an EOQ model for general demand with holding cost function and demand
rate for an item was considered as a function of existing inventory level and carrying cost
per unit was allowed to change. Recently, Dash et. al. [35] have examined for a stock
model of weakening things having exponential interest with time-fluctuating holding Cost.
In the current chapter, an EOQ model is developed for perishable deteriorating items for
time varying demand rate and time dependent linear holding cost without shortages.
Optimal result for the present model has been obtained and numerical example has been
considered for the application of the model. Also in order to increase the performance of
the model, sensitivity analysis has also been done.

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

2.2 Assumptions & Notations

For constructing the model we assume the followings:

i. Demand rate changes over time.

ii. Only one inventory is used.

iii. Lead time is zero.

iv. Model in considered without any shortage.

v. Size is finite but rate of replenishment is infinite.

vi. Finite horizon time is assumed.

vii. Repair of breaking down (deteriorating things) during the cycle is not allowed.

viii. The item deteriorates in stock.

For the model, following notations are used:

I (t ) = Inventory on hand at any time t .

R (t) = Demand rate that varies over time given by λ t- , where
  0 , 0    1 & 0  t  T.

The rate of demand is assumed to be a diminishing function of time for increase of  .

 (t )  tb , t  (0, 1), The rate of decay during stock.

As b  0 and  (t )  b  0, so at a rate b , the rate of decay increases with time.

I (0)  I 0  Initial economic order quantity.

T  Time duration in a cycle.

d c  Cost of deterioration per unit of the item.

Oc  Fixed ordering cost / order.

h(t )  l  mt  Varying holding cost/unit time with l  0 and m  0 .

CT  Total cost / unit time.

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

2.3 Formulation

Based on the above assumption, consider an inventory model and the level of
inventory can be seen from figure -I. Due to effect of deterioration and demand the stock is
decreased in [0, T] and at time T it reaches to zero level. Here the main objective is to
optimize the total cost. Now the differential equation of the proposed model has been
formulated as follows.

At time “t” let the on hand Inventory be I (t). Then, in the interval [0,T ] , for t
= t   t , the on hand inventory will be:

I (t  t )  I(t)   t . I(t). t  R(t). t,

where  (t ) and R(t ) are as defined above in (2.2). Dividing both sides by t,

choosing limit as t  0, we obtain

Fig.2.1: Inventory time diagram

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

dI
(2.3.1)  tb. I (t )   t   , t  [a, b] .
dt

Now solving equation (2.3.1) and using boundary condition I (T )  0 we get (2.3.2)
b t 2
 T 1 b T 3  t 1  b t 3  
I (t )  . e 2
     for 0  t  T .
1   2(3   ) 1   2(3   ) 

From equation (2.3.2), the initial inventory level is found to be,

 T 1  b T 3  
(2.3.3) I (0)  .   .
1   2(3   ) 

Now total demand in the interval [0, T ] is:

T
..T 1 
(2.3.4)  R(t ) dt 
0
1

The total number of deteriorating units during the cycle is found to be,

T
 b. T 3 
(2.3.5) I (0)   R (t ). dt 
0
2(3   )

Taking the above facts we get different costs as,

1. Ordering cost per cycle

(2.3.6) Ordering cost  Oc

2. Holding cost per cycle

t1
 l T 2  m T 3   l b(9  2 ) T 4   m b T 5  
(2.3.7)  (l  m t )I (t )dt      
0  2   2(3   ) 6 (3   )(4   ) 8(5   ) 

3. Deterioration cost per cycle

dc  b T 3 
(2.3.8)
2(3   )

Thus total average cost / unit time of the model becomes:

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

Oc (d c b  m ) b T 2    l T 1 l b(9  2 ) T 3

m b T 4 
 
(2.3.9) U (T )       
T 2(3   )  2   6 (3   )( 4   ) 8(5   ) 

4. Minimization of variable cost / unit time

We have the first order condition (necessary condition) for minimization of U (t1 ) is

dU (t1 )
(2.3.10) 0
dt1

and the second order condition (sufficient condition) for minimization of U (t1 ) is

d 2U( t1 )
(2.3.11) 0 .
dt12

From (2.3.10), we have

(2.3.12)   m b( 4   ) T 5  l b(9  2 ) T 4  ( 2   )( d c b  m) T 3  l (1   ) T 2   Oc  0

  

 8(5   ) 6 (4   ) 2(3   ) 2 

As it is difficult to solve the equation (2.3.9), Mat lab Software has been used to
* *
determine optimal t1 . It is verified that for the same value of t1* , the cost U (t1 ) is
minimized. Since (2.3.11) is satisfied for the optimal value of T, (2.3.9) has unique
optimal solution.

2.4. Computational Algorithm

Step-1: Start.
Step-2: Initialize the value of the variables Oc ,  , b,  , l, , d c .

Step-3: Evaluate U (t1 ) .

dU ( t1 )
Step-4: Evaluate .
dt1

dU( t1 )
Step-5: Solve the equation 0 .
dt1
Step-6: Choose the solution from Step-5.

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

d 2U( t1 )
Step-7: Evaluate .
dt12
Step-8: If the value of Step-7 is greater than zero then this solution is
Optimal (minimum) and move to Step -10.
Step -9: Otherwise move to Step-6.
Step-10: End.

2.5. Numerical Example

Following example supports the model.

Example
Considering the different parameters in usual units as follows:
Oc  600,   500, b  0.7,   0.3, l  0.6, m  0.2, d c  1
We have from equation (2.3.9), the optimal T  1.2208 and the
optimal I (0)  932.415. Furthermore, from equation (2.3.9), the minimum average total cost
/ unit time is U (T )  830.616 .

2.6. Sensitivity Analysis

Table 2.1: Sensitivity

Parameter % of change in % of change in T % of change in I 0 % of change in
parameter U (T )
+20 +5.7 +5.44 +9.2
Oc
-20 -6.1 -6.4 -10.8
+20 +10.2 +18.1 +12.1

-20 -13.2 -24.9 -16.1
+20 +2.8 +1.1 +3.6
b
-20 -3.1 -1.3 -3.7
+20 +1.7 +17.2 +1.3

-20 -0.9 -13.8 -1.2
+20 +3.4 +3.1 +5.2
l
-20 -3.6 -3.4 -5.8
+20 +2.1 +1.9 +1.4
m
-20 -1.9 -1.8 -1.5
+20 +10.6 +9.7 +6.5
dc
-20 -8.4 -7.4 -7.9

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

Important points from the table

The effect of optimality due to change of values of different parameters associated

in this model is discussed below.

1. As Oc increases T , I 0 & U (T ) is also increase.

2. As I 0 & U (T ) increase with increase in parameter  , T decreases.

3. As I 0 & T decrease with increase in value of b , U (T ) increases.

4. As  increases T , I 0 & U (T ) is also increase.

5. As I 0 & T decrease with increase in value parameters l , m & d c , U (T ) increases

Variation of Time duration, ordering Quantity and Total cost w.r.t. different

parameters.

Fig. 2.2 Variation of Time duration

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

Fig.2.3.Variation of Ordering Quantity

Fig. 2.4: Variation of Total cost

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 A Deteriorating Inventory Model of Perishable
Chapter-2 Items under Time Varying Demand Condition

2.7. Conclusion

Here a deterministic inventory model is derived for some special type of items. In
particular, time proportional deterioration is used under time varying demand condition.
Here shortages are not allowed. An optimal replenishment policy is resulted where the
average total cost in minimized. Numerical illustration has been considered to bolster the
model. Further the model has been enriched with sensitivity analysis.

The model can further be studied for different demand situations and for multiple
items under identical conditions. This can also be extended for different deterioration
conditions and also for discounted cash flow approach.

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