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An inventory model under price and stock dependent demand for controllable deterioration rate with shortages and preservation technology investment

Umakanta Mishra (), Leopoldo Eduardo Cárdenas-Barrón (), Sunil Tiwari (), Ali Akbar Shaikh () and Gerardo Treviño-Garza ()
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Umakanta Mishra: ICFAI University, Tripura
Leopoldo Eduardo Cárdenas-Barrón: Tecnológico de Monterrey
Sunil Tiwari: University of Delhi
Ali Akbar Shaikh: Tecnológico de Monterrey
Gerardo Treviño-Garza: BNSF Railway Company

Annals of Operations Research, 2017, vol. 254, issue 1, No 9, 165-190

Abstract: Abstract This paper develops an EOQ inventory model that considers the demand rate as a function of stock and selling price. Shortages are permitted and two cases are studied: (i) complete backordering and (ii) partial backordering. The inventory model is for a deteriorating seasonal product. The product’s deterioration rate is controlled by investing in the preservation technology. The main purpose of the inventory model is to determine the optimum selling price, ordering frequency and preservation technology investment that maximizes the total profit. Additionally, the paper proves that the total profit is a concave function of selling price, ordering frequency and preservation technology investment. Therefore, a simple algorithm is proposed to obtain the optimal values for the decision variables. Several numerical examples are solved and studied along with a sensitivity analysis.

Keywords: Controllable deterioration rate; Price and stock dependent demand; Preservation technology investment; 90B05 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10479-017-2419-1

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