An EOQ model for deteriorating items with inflation and time value of money considering time-dependent deteriorating rate and delay payments

Abstract

A finite time horizon inventory problem for a deteriorating item is developed with constant demand and time-varying deterioration rate under inflation and time value of money. Some of the items may deteriorate in the course of time. In this regard, the authors develop an EOQ model for time-varying deterioration rate. Shortages are allowed in each cycle and backlogged them completely. In this model, the fixed credit period is offered by the supplier to the retailer. During the credit period, the retailers are allowed a trade-credit offer by the suppliers to buy more items and earn more by selling their products. The interest on purchasing cost is charged for the delay of payment by the retailers. The objective of the study is to find optimal decision variables and order quantities of the products so that the net present value of total system cost over a finite planning horizon is minimized. Also, the profit function of the model is maximized. Finally, numerical results are presented to analyse the sensitivity of the optimal policies with respect to changes in some parameters of the system.

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