Allowing Promotion, Deterioration, Time Value of Money and Shortages in Economic Production Quantity (EPQ) Model for Price Dependent Declined Demand

A deteriorating inventory model using time-value of money with price dependent declined quadratic demand allowing promotion policy is developed for a deterministic inventory system. This study applied the discounted cash flows (DCF) approach for problem analysis with shortages in economic production quantity (EPQ) model. The objective of this model is to maximize the net present value profit so as to determine the optimal time period, promotion factor and order quantity. The numerical analysis shows that an appropriate policy can benefit the retailer and promotional policy is important, especially for deteriorating items. Finally, sensitivity analysis of the optimal solution with respect to the major parameters are also studied to draw some decisions with managerial implications for competitive advantage.