Analysis of an Inventory System for Items with Price-Dependent Demand and Time Dependent Three-Parameter Weibull Deterioration Function

Abstract

In this research work we propose a mathematical model of an inventory system with time dependent three-parameter Weibull deterioration and price- dependent demand rate. The model incorporates shortages and deteriorating items are considered in which inventory is depleted not only by demand but also by decay, such as, direct spoilage as in fruits, vegetables and food products, or deterioration as in obsolete electronic components. Furthermore, the rate of deterioration is taken to be time-proportional, and a power law form of the price dependence of demand is considered. This price-dependence of the demand function is nonlinear, and is such that when price of a commodity increases, demand decreases and when price of a commodity decreases, demand increases. The objective of the model is to minimize the total inventory costs. From the numerical example presented to illustrate the solution procedure of the model, we obtain meaningful results. We then proceed to perform sensitivity analysis of our model. The sensitivity analysis illustrates the extent to which the optimal solution of the model is affected by slight changes or errors in its input parameter values.