Inventory model with stock-level dependent demand rate and variable holding cost

Inventory models in which the demand rate depends on the inventory level are based on the common real-life observation that greater product availability tends to stimulate more sales. Previous models incorporating inventory-level dependent demand rate assume that the holding cost is constant for the...

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Bibliographic Details
Published in:International journal of production economics 2007-07, Vol.108 (1), p.259-265
Main Author: Alfares, Hesham K.
Format: Article
Language:English
Subjects:
Cost structure
Demand
Inventory
Inventory management
Inventory models
Optimization
Order quantity
Stock-dependent demand
Studies
Variable holding cost
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Summary:Inventory models in which the demand rate depends on the inventory level are based on the common real-life observation that greater product availability tends to stimulate more sales. Previous models incorporating inventory-level dependent demand rate assume that the holding cost is constant for the entire inventory cycle. This paper considers the inventory policy for an item with a stock-level dependent demand rate and a storage-time dependent holding cost. The holding cost per unit of the item per unit time is assumed to be an increasing function of the time spent in storage. Two time-dependent holding cost step functions are considered: Retroactive holding cost increase, and incremental holding cost increase. Procedures are developed for determining the optimal order quantity and the optimal cycle time for both cost structures.
ISSN:0925-5273
1873-7579
DOI:10.1016/j.ijpe.2006.12.013