Optimizing preservation strategies for deteriorating items with time-varying holding cost and stock-dependent demand

Abstract

Organizations are keen on rethinking and optimizing their existing inventory strategies so as to attain profitability. The phenomenon of deterioration is a common phenomenon while managing any inventory system. However, it could become a major challenge for the business if not dealt carefully. An investment in preservation technology is by far the most inuential move towards dealing with deterioration proficiently. Additionally, it is noticed that the demand pattern of many products is reliant on its availability and usability. Thus, considering demand of the product to be “stock-dependent" is a more practical approach. Further, in case of deteriorating items, it is observed that the longer an item stays in the system the higher is its holding cost. Therefore, the model assumes the holding cost to be time varying. Hence, the proposed framework aims to develop an inventory model for deteriorating items with stock-dependent demand and time-varying holding cost under an investment in preservation technology. The objective is to determine the optimal investment in preservation technology and the optimal cycle length so as to minimize the total cost. Numerical example with various special cases have been discussed which signifies the effect of preservation technology investment in controlling the loss due to deterioration. Finally, the effect of key model features on the optimal solution is studied through sensitivity analysis which provides some important managerial implications.

Keywords

• deterioration
• stock-dependent demand
• preservation technology investment
• time varying holding cost