EOQ Model for a Deteriorating Item with Lead-time Under Inflation Over a Finite Time Horizon

Abstract

This paper presents the optimal inventory replenishment policy of a non-instantaneous deteriorating item under inflationary conditions using a discounted cash flow(DCF) approach,over a finite planning horizon. For proper recognition of financial implication of
opportunity cost and inventory carrying cost in inventory control analysis, DCF approaches are used here.The unit cost depends on inflation as well as lead lime.The demand rate is assumed to be a function of unit cost under inflation. Shortages are allowed and partially backlogged according to an negative exponential waiting time function.Learning effect and influence of lead time are introduced on ordering cost. Maximum quantity of lost sale is prescribed.A general approach for finding the minimum cost is presented. Numerical examples are used to illustrate the approach and the model.Some sensitivity analyses to
observe the effect of deterioration and inflation on the optimal inventory policy are performed.