OPTIMAL REPLENISHMENT POLICY FOR LIFETIME INVENTORY WITH PARTIAL BACKLOGGING

Abstract In this paper, we establish an optimal replenishment policy for inventory systems involving fixed lifetime items under partial backlogging. The model incorporates key assumptions such as a constant rate of decay of product deterioration, a finite lifetime of the product, time-varying demand and partial backordering during the stockouts. The mathematically formulations of the inventory dynamics are presented, and appropriate notations are developed. The problem has been formulated mathematically in the form of a mathematical model to minimize total inventory costs including ordering, holding, shortage, and deterioration costs. A classical optimization method is used to develop an analytical solution algorithm to determine the optimum cycle length and the order quantity. Numerical example based on real-world inventory problem is presented to verify the model and to illustrate its practical applicability. Further, sensitivity analysis is conducted to show the effects of the important parameters, such as backordering rate, deterioration rate and demand variance, on the optimal solutions and the total cost. The results suggest that both partial backlogging and product life are important factors affecting replenishment policies. This model would be of great value to inventory managers in charge of perishable or time sensitive products in their efforts to balance the trade-off between cost and level of service. Keywords:Replenishment Policy, Lifetime Inventory, Partial Backlogging, Inventory Optimization, Deteriorating Items.