Two-warehouse partial backlogging inventory model for deteriorating items with linear trend in demand under inflationary conditions

Abstract

In today's business transactions, there are various reasons, namely, bulk purchase discounts, re-ordering costs, seasonality of products, inflation induced demand, etc., which force the buyer to order more than the warehouse capacity. Such situations call for additional storage space to store the excess units purchased. This additional storage space is typically a rented warehouse. Inflation plays a very interesting and significant role here: It increases the cost of goods. To safeguard from the rising prices, during the inflation regime, the organisation prefers to keep a higher inventory, thereby increasing the aggregate demand. This additional inventory needs additional storage space, which is facilitated by a rented warehouse. Ignoring the effects of the time value of money and inflation might yield misleading results. In this study, a two-warehouse inventory model with linear trend in demand under inflationary conditions having different rates of deterioration has been developed. Shortages at the owned warehouse are also allowed subject to partial backlogging. The solution methodology provided in the model helps to decide on the feasibility of renting a warehouse. Finally, findings have been illustrated with the help of numerical examples. Comprehensive sensitivity analysis has also been provided.

Keywords:

• inventory
• warehouse
• deterioration
• partial backlogging
• lost sales
• inflation

Acknowledgement

The first author would like to acknowledge the support of the Research Grant No.: Dean(R)/R&D/2008/230, provided by the University of Delhi, Delhi, India for conducting this research.