International Journal of Computational and Applied Mathematics ISSN 18194966 Volume 4 Number 1 (2009), pp. 83–94 © Research India Publications http://www.ripublication.com/ijcam.htm
Twowarehouse Inventory Model for Deteriorating Items with Shortages under Inflation and Timevalue of Money
S. R. Singh ^{1} , Neeraj Kumar ^{2} and Rachna Kumari ^{3}
^{1} Deptt. of Mathematics, D.N. College, Meerut Email: shivraj@gmail.com ^{2} Deptt. of Applied Science, IIMT Engineering College, Meerut Email: neerajkapil99@yahoomail.com ^{3} Deptt. of Mathematics, Meerut College, Meerut Email: kumarn_inde@yahoo.com
Abstract
An inventory problem for a deteriorating item having two separate warehouses, one is a own warehouse (OW) of finite dimension and the other rented warehouse (RW) of infinite dimension, is developed under inflation and time value of money. Deterioration rates of items in the two warehouses may be different, which is time dependent. In addition, we allow for shortages and complete backlogging. Due to different facilities and storage environment, inventory holding cost is considered to be different in different warehouses. The demand rate of items is linear with time, the stocks of RW transported to OW in continuous release pattern.
Keywords: Twowarehouse, Timedependent deterioration, Timedependent demand rate, Inflation and timevalue of money.
1. Introduction
In the busy markets like super market, municipality market etc. the storage area of items is limited. When an attractive price discount for bulk purchase is available or the cost of procuring goods is higher than the other inventory related cost or demand of items is very high or there are some problems in frequent procurement, management decide to purchase a large amount of items at a time. These items cannot be accommodated in the existing storehouse (viz. the Own Warehouse, OW) located at busy market place. In this situation, for storing the excess items, one additional
84
S. R. Singh, Neeraj Kumar and Rachna Kumari
warehouse (viz. rented warehouse, RW) is hired on rental basis, which may be located little away from it. We assume that the rent (hold cost for the item) in RW is greater than OW and hence the items the items are stored first in OW and only excess stock is stored in RW, which are emptied first by transporting the stocks from RW to OW in a continuous release pattern for deducing the holding cost. The demand of items is met up at OW only. An early discussion on the effect of two warehouses was considered by Hartely (1976) recently this type of inventory model has been considered by other authors. Sarma (1983) developed a deterministic inventory model with finite replenishment rate; Dave (1988) further discussed the cases of bulk release pattern for both finite and infinite replenishments. He rectified the errors in Murdeshwar and Sathe (1985) and gives a complete solution for the model given by Sarma (1983). In the above literature, deterioration phenomenon was not taken into account. Assuming the deterioration in both warehouses, Sarma (1987), extended his earlier model to the case of infinite replenishment rate with shortages. Pakkala and Achary (1992) extended the twowarehouse inventory model for deteriorating items with finite replenishment rate and shortages, taking time as discrete and continuous variable, respectively. In these models mentioned above the demand rate was assumed to be constant. Subsequently, the ideas of time varying demand and stock dependent demand considered by some authors, such as Goswami and Chaudhary (1998), Bhunia and Maiti (1998), Bankerouf (1997), Kar et al. (2001) and others. Bhunia and Maiti (1994) extended the model of Goswami and Chaudhary (1972), in that model they were not consider the deterioration and shortages were allowed and backlogged. Yang (2004) provided a twowarehouse inventory model for a single item with constant demand and shortages under inflation. Instead of the classical view of accumulating shortages at the end of each replenishment cycle, an alternative model in which each cycle begins with shortages has been proposed here. Zhou and Yang (2005) studied stockdependent demand without shortage and deterioration with quantity based transportation cost, Wee, Yuond Law (2005) considered a twowarehouse model with constant demand and weibull distribution deterioration under inflation. Yang (2006) extended Yang (2004) to incorporate partial backlogging and then compared the twowarehouse models based on the minimum cost approach. Due to high inflation and consequent sharp decline in the purchasing power of money in the developing countries like Brazil, Argentina, India, Bangladesh etc., the financial situation has been completely changed and so it is not possible to ignore the effect of inflation and time value of money any further. Following Buzacott (1975) and Misra (1979), several researchers (1997, 2000 etc.) have extended their approaches to different inventory models by considering the time value of money, different inflation rtes for the internal and external costs, finite replenishment, shortages, etc. In this paper, we develop a deterministic inventory model for deteriorating items with twowarehouses under inflation and time value of money. We allow for shortages and complete backlogging, and assume that the inventory cost (including holding cost and deterioration cost) in RW is higher than that in OW. The firm stores goods in OW before RW, but clears the stocks in RW before OW follows a krelease
Twowarehouse Inventory Model for Deteriorating Items
85
rate. Even till now, most of the researchers have been either completely ignoring the deterioration factor or are considering a constant rate of deterioration in the warehouses, which is not possible practical. Since the effect of deterioration cannot be ignored, have in one of the warehouse we considered timevarying deterioration and in the other we have taken weibull distribution deterioration.
2. Assumptions and Notations
The
assumptions:
mathematical
model
in
this
paper
is
developed
based
on
the
following
(1) 
Demand rate is deterministic and is a function of time. 
(2) 
Shortages are allowed and completely backlogged. 
(3) 
Deterioration rate in owned warehouse is time dependent. 
(4) 
Deterioration rate of the item in rented warehouse follows a two parameter Weibull distribution. 
(5) There is no replacement or repair of deteriorating items during the period under consideration.
(6) 
Production transactions are followed by instantaneous cash flow. 
(7) 
The OW has a fixed capacity of W units and the RW has unlimited capacity.] 
(8) 
The holding costs in RW are higher than those in OW. 
(9) 
Inventory system is considered single item. 
(10) Inflation and time value of money are considered. (11) The transfer of stocks from RW to W follows a krelease rule. (12) Leadtime is zero and the replenishment rate is infinite. The following notations are used throughout the paper:
D (t) Demand rate where D (t) = a+bt, a and b are positive constants where a>b.
W Capacity of OW
R Amount of goods stored in RW
s Per unit selling price of the item
r
Constant
inflation rate.
Purchasing cost per unit item Holding cost per unit per unit time in OW Holding cost per unit per unit time in RW, C _{r} >C _{o} Shortage cost per unit per unit time Setup cost per cycle. Inventory level at any time b, i = 1 for OW and i = 2 for RW.
representing
the
difference
between
the
discount
rate
and
C
C
C
C
A
I _{i} (t)
M(t) Rate of deterioration in OW where M(t) = θt, θ is a positive constant where
0<θ<<1.
Two parameter probability density function for the rate of deterioration,
f(t)
f(t)
(α > 0), β is the shape
_{o}
_{r}
^{1}
αβ t
(
β− 1 e
−αβ
t
)
where is the scale parameter
=
parameter (β > 0).
86
Z (t)
S. R. Singh, Neeraj Kumar and Rachna Kumari
Weibull
RW,
(
Zt
)
instantaneous
f
(
t
)
e
−α β
t
= αβ
t
β− 1
rate
function
for
the
stocked
items
in
3. Mathematical Model
In the development of the model, we assume that a company purchases S (S > W) units out of which W units are kept in OW and (S–W) units are kept in RW. Initially, the demands are not using the stocks of OW until the stock level drops to (W–K) units at the end of T _{1} . At this stage, K (K < W) units are transported from RW to OW. As a result, the stock level of OW again becomes W and the stocks of OW are used to meet further demands. This process is continued until the stock in RW is fully exhausted. After the last shipment, only W units are used to satisfy the demand during the interval [T _{n}_{}_{1} , T _{n} ] and then the shortages are allowed and completely backlogged during the interval [T _{n} , T]. The graphical representation of the whole process is shown in the figures below:
OW inventory system can be represented by the following differential equation:–
I
1
1
()
t
=−
M
()
t
I
1
()
t
−
D
()
t
, T
i
≤
tT
≤
i1
+
With the boundary condition I _{1} (T _{i} ) = W, i=0, 1, 2 For i=n, I _{1} (T _{i} ) = 0 and
I
1
1
()
t
()
=−D t
,T
n
≤ t ≤ T
i+1
n–1
…
…
(1)
(2)
With the boundary condition I _{1} (T _{n} ) = 0 Using the boundary conditions, the solution of equation (1) and (2) is given by
I
,
I
1
1
(
t
)
e
θ t
2
/2
T
i
≤≤
t
(
)
te
θ t
2
/2
=
a
⎛
⎜
⎝
θθ
(
T
3
−
t
3
)
+
40
2
T
ii
6
−+ t
(
5
T
i
T
i1
+
,i
⎛
⎜
⎝
=
0,1, 2
−+ t
n
−
2
θθ −
(
T
3
t
3
)
+
40
2
=
aT
nn
6
(
5
n
T
T
n
t
≤≤
T
i1 +
I
()
t
1n
= a
(
T
,i
,
and
=
−
n
t
−
1
)
+
1
2
(
2
T
n
−
t
2
)
−
−
t
5
t
5
)
⎞ ⎛⎛ − ⎞ θθ
⎟
⎠
T
i
2
t
2
⎟
⎠
+
2
+
b
⎜⎜
⎜
⎝⎝
(
T
i
4
2
8
−
t
4
)
+
48
(
T
i
6
)
⎞
⎟
⎠
+
b
⎛⎛
⎜⎜
⎜
⎝⎝
2
T
n
−
t
2
⎞
⎟
⎠
+
θθ −
(
4
T
n
t
4
)
+
48
2
2
8
(
6
n
T
,T
n
≤≤ t
T
−
−
t
6
t
6
)
⎞
⎟
⎠
⎟
)
…
⎞
⎟
⎠
⎟
…
…
(3)
(4)
(5)
Twowarehouse Inventory Model for Deteriorating Items
87
The RW inventory system can be represented by the following differential equation:
(6)
I
1
2
()
t
=−
Z
()
t
I
2
()
t
,T
i
≤
t
≤
T
i1
+
…
With the boundary condition
Using the boundary condition, the solution of equation (6) is given by
I
2
(
T
n1
−
)
=
0, and i=0,1,2
n2
I
2
(
t
)
=
R.e
−α t
β
,
T
i
≤
tT
≤
i1
+
and
I
2
()
t
=
(
(
IT
i
)
−
)
qe
α
(
β
i
T
−
t
β
)
,
T
i
<
t
≤
T
i1
+
, i=0,1,2
n2
…
…
(7)
(8)
1. Present worth setup cost
Order is placed of the beginning of each cycle and hence for every cycle
SPC = A
…
(9)
2. Present worth item cost
Inventory is bought at the beginning of the cycle and stored separately at the two
warehouses. Hence, IC = SC
… (10)
3. Present worth holding cost in OW
Inventory is available during
needs to be computed during these time periods.
T
i
≤≤
t
T
i1
+
,
i
=
0,1,2
HC
OW
=
n
−
1
∑
i
=
0
C
O
e
− rT
i
T
i+1
∫
T i
I
1
(
t
)
e
rt
dt
4. Present worth holding cost in RW
Inventory is available during
needs to be completed during these time periods.
T
i
≤≤
t
T
i1
+
,
i
=
0,1,2
HC
RW
=
n
−
2
∑
i
=
0
C e
r
− rT
i
T
i+1
∫
T i
I
2
(
t
)
e
rt
dt
n 
− , Hence the holding cost 1 

… 
(11) 

n 
− 
2 . Hence the holding cost 
…
(12)
5. Present worth shortage cost in OW
Shortage occurs during the period T < t < T . Hence the shortage cost needs to be completed during this time period.
(13)
n
1
rT
n
&&&&
T
∫⎣
⎡−D t ⎤ e dt
(
)
⎦
rt
SC
= C e
OW
…
T
n
6. Present worth Sales Avenue
Since the inventory is available for sale during
can be gained in this time only. The present worth of profit gained during this time is obtained by the following expression,
, profit
T
i
≤≤
t
T
i1
+
,
i
=
0,1,2
n
−
1
SR
n
−
1
= ∑
i =
0
s e
rT
i
T
i+1
∫
T
i
D
(
t
)
e
rt
dt
…
(14)
88 
S. R. Singh, Neeraj Kumar and Rachna Kumari 

7. 
Present worth transportation cost 
Inventory is transferred from the RW to OW at T , i=0,1,2
i
TRC
=
T
c
n
−
1
∑
i
=
1
e
rT
i
Present worth total profit:
(
n1 , therefore we have
)
…
(15)
The present worth net profit is found by deduction various form the sales profit. Using the equations from 9 to 15, P=SR–SPC–IC–HC _{O}_{W} –HC _{R}_{W} –SC _{O}_{W} –TRC Here, our aim is to find that quantity, which should be stored in the RW, and the number of times the inventory should be transferred from the RW to the OW so that the net profit might be maximized.
4. Numerical Illustrations
For an inventory system, we considered the following data for solving the equations
of the model: θ = 0.01, C = 1, C _{O} = 1, C _{r} = 1.5, T = 100, s = 20, A = 100 With these values we find different solutions of the system for integral values of n
i.e. 1, 2,
a = 200, b = 5, α = 0.005, β = 2, W = 500
5.
Example 1.
Table 1a: Time values for different number of cycles.
n 
T 
1 
T 
2 
T 
3 
T 
4 
T 
5 
T 
6 

1 
1.8132 
4.0742 
– 
– 
– 
– 

2 
1.8132 
3.5092 
5.6519 
– 
– 
– 

3 
1.8132 
3.5092 
5.1086 
7.1519 
– 
– 

4 
1.8132 
3.5092 
5.1086 
6.6272 
8.5872 

5 
1.8132 
3.5092 
5.1086 
6.6272 
8.078 
9.9699 

Table 1b: Optimal values for different number of cycles. 

n 
R 
Cost 
Revenue 
Shortage 
Net Profit 
NP/T 

Cost 

1 
381.2154 
7432.5744 
13627 
966.5023 
5227.9233 
1283.1779 

2 
780.0307 
10540.3737 
16964 
1953.1384 
4470.4879 
790.9708 

3 
1207.3 
13436.3723 
19591 
2498.2347 
3656.3923 
511.2477 

4 
1674.4 
16275.7224 
21638 
2739.1215 
2623.1561 
366.7775 

5 
2194.1 
19224.5237 
23257 
2768.9548 
1263.5215 
126.7336 
Twowarehouse Inventory Model for Deteriorating Items
89
0123456
Time value of different numbers of cycles
Fig.1
Example 2. a = 200, b = 5, α = 0.001, β = 2, W = 500
Table 2a: Time values for different number of cycles.
n 
T 
1 
T 
2 
T 
3 
T 
4 
T 
5 
T 
6 

1 
1.8132 
4.0742 
– 
– 
– 
– 

2 
1.8132 
3.5092 
5.6519 
– 
– 
– 

3 
1.8132 
3.5092 
5.1086 
7.1515 
– 
– 

4 
1.8132 
3.5092 
5.1086 
6.6272 
8.5872 

5 
1.8132 
3.5092 
5.1086 
6.6272 
8.078 
9.9699 

Table 2b: Optimal values for different number of cycles. 

n 
R 
Cost 
Revenue 
Shortage 
Net Profit 
NP/T 

Cost 

1 
376.2349 
6633.4471 
13627 
966.5023 
6027.0506 
1479.3212 

2 
755.8814 
9559.125 
16964 
1953.1384 
5451.7366 
964.5848 

3 
1140.8 
12244.9656 
19591 
2498.2347 
4847.7997 
677.8338 

4 
1532.6 
14783.2967 
21638 
2739.1215 
4115.5785 
479.2688 

5 
1932.9 
17237.2918 
23257 
2768.9548 
3250.7452 
326.0559 
90
S. R. Singh, Neeraj Kumar and Rachna Kumari
0123456
Time value of different number of cycles
Fig.2
Example 3: a = 300, b = 5, α = 0.001, β = 2, W = 500
Table 3a: Time values for different number of cycles.
n 
T 
1 
T 
2 
T 
3 
T 
4 
T 
5 
T 
6 

1 
1.231 
2.8206 
– 
– 
– – 

2 
1.231 
2.4235 
3.97 
– 
– – 

3 
1.231 
2.4235 
3.5808 
5.0878 
– 
– 

4 
1.231 
2.4235 
3.5808 
4.7061 
6.177 

5 
1.231 
2.4235 
3.5808 
4.7061 
5.8021 
7.2403 

Table 3b: Optimal values for different number of cycles. 

n 
R 
Cost 
Revenue 
Shortage 
Net Profit 
NP/T 

Cost 

1 
375.5687 
5929.1126 
14706 
 
9057.2717 
3211.1153 

2 
752.7777 
8669.7393 
19116 
1292.9461 
9153.3146 
2305.6208 

3 
1132.6 
11265.7885 
22753 
2279.3241 
9207.8874 
1809.7974 

4 
1516 
13755.91 
25772 
3164.1900 
8851.9 
1433.0419 

5 
1903.9 
16170.81 
28291 
3642.4190 
8478.5 
1171.0150 
Twowarehouse Inventory Model for Deteriorating Items
91
0123456
Time value of different number of cycles
Fig.3
Example 4: a = 300. b = 5, α = 0.001, β = 2, W = 400.
Table 4a: Time values for different number of cycles.
n 
T 
1 
T 
2 
T 
3 
T 
4 
T 
5 
T 
6 

1 
0.9886 
2.2748 
– 
– 
– 
– 

2 
0.9886 
1.9359 
3.1956 
– 
– 
– 

3 
0.9886 
1.9359 
2.8798 
4.1142 
– 
– 

4 
0.9886 
1.9359 
2.8798 
3.8034 
5.0142 

5 
0.9886 
1.9359 
2.8798 
3.8034 
4.708 
5.8967 

Table 4b: Optimal values for different number of cycles. 

n 
R 
Cost 
Revenue 
Shortage 
Net Profit 
NP/T 

Cost 

1 
300.2933 
4585.1273 
12179 
– 
8842.4895 
3887.1503 

2 
601.4198 
6700.5474 
16035 
287.5635 
9622.0161 
3011.0202 

3 
903.9181 
8740.196 
19405 
1459.4177 
9205.3863 
2237.4669 

4 
1208.3 
10713.5188 
22299 
2344.5577 
9240.9235 
1842.9507 

5 
1515 
12635.2517 
24792 
2997.0191 
9159.7295 
1553.3653 
92
S. R. Singh, Neeraj Kumar and Rachna Kumari
0123456
Time value of different number of cycles
Fig.4
5. Observation
(1) 
From example 1, we observe that as the number of cycle increases, the net profit 
(2) 
as well as net profit per unit time is found to decrease. From example 2, since the deterioration in the RW is decreasing from α = 0.005 
to α = 0.001 and also it is observed that the net profit as well as net profit per unit time is found to decrease for increasing number of cycles. (3) From example 3, the time values of this example are comparatively very less
than the previous example 2, but since the demand has also increased, hence there is no appreciable change in the value of required items. It is also observed that as the number of cycles increases, the net profit increases from cycle 1 to 3, but the net profit per unit time is found to be maximum for n = 1. Consecutively, it is observed that the net profit as well as the net profit per unit time is found to be decrease for increasing number of cycles. From example 4, we observe that as the storage capacity of OW is decreased, the quantity to be ordered obviously decreases and the cost also goes down. But as the time values have gone down, the net profit is found to be minimum for n = 1 and the net profit per unit time is found to be maximum for n = 1. At last it is observed that the net profit as well as the net profit per unit time is found to decrease for increasing the number cycles.
(4)
6. Conclusion
In this paper, an inventory model is developed for deteriorating items with two warehouse, permitting shortage under inflation and timevalue of money. Holding costs and deterioration costs are different in OW and RW due to different preservation environments. The inventory costs (including holding cost and deterioration cost) in RW are assumed to be higher than those in OW. To reduce the inventory costs, it will
Twowarehouse Inventory Model for Deteriorating Items
93
be economical for firms to store goods in OW before RW, but clear the stocks in RW before OW. Most of the researchers have till now ignored the effects of deterioration in both the warehouses or have considered a constant rate of deterioration. But we have taken a linear time dependent deterioration rate in OW and weibull distribution type deterioration rate in RW. The model is solved for different system parameters for up to five cycles and the optimal solution is selected from amongst the available solutions. The system is solved by using the mathematical software MATLAB 7.0.1.
7. References
[1] R.V. Hartley, Operations Research—A Managerial Emphasis, Good Year Publishing Company, California, 1976, pp. 315317. [2] K.V.S. Sarma, A deterministic inventory model with two level of storage and an optimum release rule, Opsearch 20 (1983) 175180. [3] T.A. Murdeshwar, Y.S. Sathe, Some aspects of lot size model with two levels of storage, Opsearch 22 (1985) 255262. [4] U. Dave, On the EOQ models with two levels of storage, Opsearch 25 (1988)
190196.
[5] K.V.S. Sarma, A deterministic order level inventory model for deteriorating items with two storage facilities. European Journal of Operational Research 29 (1987) 7073. [6] T.P.M. Pakkala, K.K. Achary, Discrete time inventory model for deteriorating items with two warehouses, Opsearch 29 (1992) 90103. [7] T.P.M. Pakkala, K.K. Achary, A deterministic inventory model for deteriorating items with two warehouses and finite replenishment rate, European Journal of Operational Research 57 (1992) 157 167. [8] A. Goswami, K.S. Chaudhuri, On an inventory model with two levels of storage and stockdependent demand rate, International Journal of Systems Sciences 29 (1998) 249254. [9] A.K. Bhunia, M. Maiti, A twowarehouse inventory model for deteriorating items with a linear trend in demand and shortages, Journal of the Operational Research Society 49 (1998) 287292.
[10] S. Kar. A.K. Bhunia, M. Maiti, Deterministic inventory model with two levels of storage, a linear trend in demand and a fixed time horizon. Computers & Operations Research 28 (2001) 13151331. [11] Y.W. Zhou, A multiwarehouse inventory model for items with timevarying demand and shortages, Computers & Operations Research 30 (2003) 2115
2134.
[12] A. K. Bhunia and M. Maiti, A two warehouse inventory model for a linear trend in demand, Opsearch 31 (1994). [13] H. M. Wee, J.C.P. Yu and S.T.Law, Twowarehouse inventory model with partial backordering and Weibull distribution deterioration under inflation 22 (2005) 451462.
94
S. R. Singh, Neeraj Kumar and Rachna Kumari
[14] J.A. Buzacott, Economic order quantities with inflation, Operational Research Quarterly 26(1975) 553 558. [15] R. B. Misra, A note on optimal inventory management with inflation, Naval Research Logistics 26(1979) 161165. [16] J. Ray, K. S. Chaudhuri, An EOQ model with stockdependent demand, shortage, inflation and time discounting, International Journal of Production Economics 53 (1997) 171180. [17] B. R. Sarkar, A. M. M. Jamal, S. Wang, Supply chain models for perishable products under inflation and permissible delay in payments, Computers and Operations Research 27(2000) 5975.
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