TWO-WAREHOUSE INVENTORY MODEL FOR DETERIORATING ITEMS WITH EXPONENTIAL DEMAND RATE UNDER TWO LEVEL TRADE CREDIT AND SHORTAGES

In the context of inventory management, many factors such as demand, trade credit, nature of the item, capacity of the warehouse and shortages makes the models more applicable. However, their integration in a single unified model is tractable. In this study, two-warehouse inventory model for deteriorating items is developed with exponential demand rate. The trade credit is adopted at both upstream and downstream simultaneously. Shortage is allowed and fully backlogged. The deterioration rate of the item is assumed time varying. The cost functions of the model were derived, and their convexity established. Based on the result, the total cost of maintaining the inventory is minimum when trade credit period expires before the total depletion of goods in the rented warehouse, indicating that it is more cost-effective for the retailer to order large quantity while taking smaller trade credit period. Result of sensitivity analysis reveals that the holding cost, warehouse capacity and the length of upstream trade credit period significantly influence the replenishment cycle and total cost.