An inventory model involving back-order price discount when the amount received is uncertain

Abstract

This paper presents and analyses the continuous review inventory model with order quantity, safety factor, back-order price discount, ordering cost and lead time as decision variables. Our work is based on the paper of Huang (2010). We extend the model to incorporate the situation when the amount received is uncertain. The lead time demand is assumed follows a normal distribution. A solution procedure is developed to find the optimal solution. A numerical example is given to illustrate the model. A sensitivity analysis is also included to describe the effects of changes in the model parameters on the expected annual cost.

Keywords:

• lead time
• ordering cost reduction
• back-order price discount
• order quantity
• reorder point
• crashing cost

Acknowledgements

The authors greatly appreciate the anonymous referees for their several helpful suggestions on an earlier version of the paper.

Additional information

Notes on contributors

Nughthoh Arfawi Kurdhi

Nughthoh Arfawi Kurdhi received his BS degree from Sebelas Maret University, Indonesia (2007), and an MS degree from Gadjah Mada University (2010), Indonesia, both in applied mathematics. He is working as a lecturer and researcher in the Mathematics Department at Sebelas Maret University. His teaching and research involve operations research, optimisation, mathematical modelling and combinatorics. He has published international conferences, journal papers and books. He is currently a coordinator of Research Group Operations Research and Optimization at Sebelas Maret University.

Joko Prasetyo

Joko Prasetyo received his BS degree from Department of Mathematics, Sebelas Maret University (2013), Indonesia. His research interests include deterministic and probabilistic operations research, non-linear programming and dynamical system. He has published journal papers.

Sri Sulistijowati Handajani

Sri Sulistijowati Handajani received her BS degree from Brawijaya University (1992),Indonesia, and an MS degree from Gadjah Mada University (2001), Indonesia, both in statistics. She is working as a lecturer in Faculty of Mathematics and Natural Sciences, Sebelas Maret University. Her teaching and research involve statistics methods, design experiment, quality control and probabilistic operation research. She has published national conferences and journal papers. She is currently a secretary of Mathematics Department at Sebelas Maret University.