Exact optimal cycle time for the EPQ model with defective materials under inflation and time discounting

Abstract

This paper follows the discounted cash flow (DCF) approach to investigate inventory problem for EPQ model with defective materials under inflation and time discounting. Firstly, this paper shows that the present value of the total relevant cost for the infinite planning horizon is a convex function. Secondly, this paper derives bounds to determine the exact optimal cycle time under minimum value of the present value of the total relevant cost for the infinite planning horizon. Thirdly, with these bounds, a simple algorithm is derived to help the determination of the exact optimal cycle time. Finally, a numerical example is given to illustrate the algorithm discussed in this paper.

Keywords:

• EPQ
• DCF
• defective material
• inflation
• time value of money