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International Journal of Computational and Applied Mathematics ISSN 1819-4966 Volume 4 Number 1 (2009), pp. 83–94 © Research India Publications http://www.ripublication.com/ijcam.htm

Two-warehouse Inventory Model for Deteriorating Items with Shortages under Inflation and Time-value of Money

S. R. Singh 1 , Neeraj Kumar 2 and Rachna Kumari 3

1 Deptt. of Mathematics, D.N. College, Meerut E-mail: shivraj@gmail.com 2 Deptt. of Applied Science, IIMT Engineering College, Meerut E-mail: neerajkapil99@yahoomail.com 3 Deptt. of Mathematics, Meerut College, Meerut E-mail: 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: Two-warehouse, Time-dependent deterioration, Time-dependent demand rate, Inflation and time-value 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 two-warehouse 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 two-warehouse 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 stock-dependent demand without shortage and deterioration with quantity based transportation cost, Wee, Yuond Law (2005) considered a two-warehouse model with constant demand and weibull distribution deterioration under inflation. Yang (2006) extended Yang (2004) to incorporate partial backlogging and then compared the two-warehouse 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 two-warehouses 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 k-release

Two-warehouse 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 time-varying 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 k-release rule. (12) Lead-time 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

t = αβ t β− 1 rate function for the stocked items in 3. Mathematical Model

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)

Two-warehouse 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

n-2

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

n-2

(7)

(8)

1. Present worth set-up 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:

(

n-1 , 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 OW –HC RW –SC OW –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

Two-warehouse Inventory Model for Deteriorating Items

89

1400 1200 1000 800 600 400 200 0 Net profit / time
1400
1200
1000
800
600
400
200
0
Net profit / time
Series1
Series1

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

1600 1400 1200 1000 800 600 400 200 0 Net profit / time
1600
1400
1200
1000
800
600
400
200
0
Net profit / time
Series1
Series1

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

Two-warehouse Inventory Model for Deteriorating Items

91

3500 3000 2500 2000 1500 1000 500 0 Net profit / time
3500
3000
2500
2000
1500
1000
500
0
Net profit / time
Series1
Series1

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

4500 4000 3500 3000 2500 2000 1500 1000 500 0 Net profit / time
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Net profit / time
Series1
Series1

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 time-value 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

Two-warehouse 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. 315-317. [2] K.V.S. Sarma, A deterministic inventory model with two level of storage and an optimum release rule, Opsearch 20 (1983) 175-180. [3] T.A. Murdeshwar, Y.S. Sathe, Some aspects of lot size model with two levels of storage, Opsearch 22 (1985) 255-262. [4] U. Dave, On the EOQ models with two levels of storage, Opsearch 25 (1988)

190-196.

[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) 70-73. [6] T.P.M. Pakkala, K.K. Achary, Discrete time inventory model for deteriorating items with two- warehouses, Opsearch 29 (1992) 90-103. [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 stock-dependent demand rate, International Journal of Systems Sciences 29 (1998) 249-254. [9] A.K. Bhunia, M. Maiti, A two-warehouse inventory model for deteriorating items with a linear trend in demand and shortages, Journal of the Operational Research Society 49 (1998) 287-292.

[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) 1315-1331. [11] Y.W. Zhou, A multi-warehouse inventory model for items with time-varying 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, Two-warehouse inventory model with partial backordering and Weibull distribution deterioration under inflation 22 (2005) 451-462.

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) 161-165. [16] J. Ray, K. S. Chaudhuri, An EOQ model with stock-dependent demand, shortage, inflation and time discounting, International Journal of Production Economics 53 (1997) 171-180. [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) 59-75.