Economic Order Quantity Model with Weibull Distributed Deterioration under a Mixed Cash and Prepayment Scheme

Area of Science:

• Operations Research
• Supply Chain Management

Background:

• Deteriorating inventory models are crucial for managing products with limited shelf life.
• Aggregate demand is influenced by advertisement frequency and market price.
• Weibull distribution models product deterioration rates.

Purpose of the Study:

• To develop and analyze two distinct inventory models for deteriorating items.
• To optimize inventory policy, market price, and marketing strategy for maximum profit.
• To incorporate advance payment schemes and stock-out handling (backordering).

Main Methods:

• Formulation of two nonlinear, mixed-integer optimization problems.
• Development of two efficient algorithms to solve these problems.
• Sensitivity analysis through numerical illustrations to assess parameter impact.

Main Results:

• The study provides optimal inventory policies and pricing strategies for both models.
• Advance payment schemes and backordering significantly impact profit maximization.
• The developed algorithms effectively solve the complex optimization problems.

Conclusions:

• The research offers valuable decision-making insights for inventory management of deteriorating items.
• Optimizing advertisement frequency, price, and payment terms is key to enhancing profitability.
• The models extend existing inventory literature with realistic features.