Analysis of inventory policies in an integrated production/inventory system with decaying materials

This paper presents an analytical model for determining the economic batch quantity for raw material ordering and production in a multi-stage production system, considering the decay of the raw material and the in-process inventory. In many industries, materials will perish over a given time period and this will register as a decrease in the stock level of raw material and in-process inventory. The effect of decaying inventory has to be taken into account when planning various production activities. A mathematical model has been developed for determining the economic ordering quantity (EOQ) for raw materials and the economic production quantity (EPQ) for processing in a two-stage production system with decaying materials. The basic criterion considered for optimizing the batch sizes is the minimization of the total annual variable cost (TAVC). A direct pattern search method (DPSM) has been employed for optimizing batch sizes by minimizing TAVC. A numerical example is given to explain the behaviour of the model.