11

CHAPTER 2 A PRODUCTION MODEL FOR DETERIORATING

INVENTORY ITEMS WITH PRODUCTION DISRUPTIONS
2.1 Modeling Assumptions
In this chapter, we make use of the following assumptions:
i. A single product and a single manufacturer are assumed.
ii. Demand rate is Deterministic and Constant.
iii. Normal Production rate is greater than Demand Rate.
iv. Lead time is assumed to be negligible.
v. Deterioration rate is deterministic and constant.
vi. Shortages are not allowed.
vii. Time horizon if finite.
viii. There is only one chance to order the products from spot markets during
the planning horizon.
ix. Here u
be the constant deterioration rate of finished products.











11

At first, the Manufacturer makes decisions about the optimal production time
T
p
under the normal production rate. The inventory model for deteriorating items with
normal production rate can be shown in figure 1.

Inventory








O T
p
N Time

Figure 1: Inventory Systems without Disruptions.
The instantaneous inventory level at any time t [0, H] is governed by the
differential equations. 2.1

( )
( )
1
1 p
2
2 p
( )
I t p d; 0 t T
( )
I t d; T t
dI t
dt
dI t
H
dt
u
u
+ = s s
+ = s s
(2.1)
Using the boundary condition,
( )
1
I 0 0 u = and
( ) 2 I 0 H u = .
I
1
(t) e
t u
=
( ) p d
u

e
t u
+ c

( )
0
p d
c
u

= +

11


( ) p d
c
u

=
Then the solution of Differential Equation I
1
(t) is
I
1
(t) e
t u
=
( ) p d
u

( e
t u
- 1)
I
1
(t) =
( ) p d
u

( 1 - e
t u
) 0 t p T s s (2.2)
The Differential Equation for I
2
(t) is given by

( )
2
2
( )
I t d, t p
dI t
T H
dt
u + = s s

I
2
(t) e
t u
= -d
H
e
c
u
u
+
Using the boundary condition, I
2
(H) = 0, we get
I
2
(H) e
H u
= -d
H
e
c
u
u
+
0 = c -
d
u
H
e
u

c =
d
u
H
e
u

Then the solution of differential equation I
2
(t) is
I
2
(t) e
t u
= -
d
u
t
e
u
+
d
u
H
e
u

=
d
u
(
H
e
u
-
t
e
u
)
I
2
(t) =
d
u
(
( ) H t
e
u
- 1), t p T H s s (2.3)




11

If the condition I
1
( T
p
) = I
2
( T
p
) yields, then the normal production rate T
p
without
disruptions is represented as

( ) p d
u

(1- e
p
T u
) =
d
u
(e
( )
P
H T u
1) (2.4)
(p d ) (p-d) e
p
T u
= d

e
H u
. e
p
T u
d
p p e
p
T u
+ d e
p
T u
d e
p
T u

H
e
u
= 0
p =
( )
.
p
T
H
p de d e
H
u
u
u

+


p
T
e
u
=
( )
H
p de d
d
u
+


p
T u
= ln
( )
H
p de d
p
u
+


p
T =
( )
1
ln
H
p de d
p
u
u
+
(2.5)
By doing an asymptotic analysis for the i
th
inventory interval I
i
(t). Expanding the
exponential functions and neglecting second and higher powers of u for small value
of u , then eqn (2.2) becomes,
I
1
(t) =
( ) p d
u

( 1 - e
t u
) 0 t p T s s
=
( )
2
1 1 ...
1! 1!
t
p d t
u
u
u
( | |

( | +
|
(
\ .

=
1
2
( )
1 2
t
p d t u
(

(


Neglecting second and higher powers of u , we get
I
1
(t) =
2
1
( )
1 2
t
p d t u
(

(

, 0 t p T s s (2.6)

11

From (2.3)
I
2
(t) =
d
u
(
( ) H t
e
u
- 1), t p T H s s

=
( )
1 T
d
c p d pe
u
u

(
= +A
(


=
2
( )
( ) ...
2
d H t
H t
u
u
(
| |
+ +
( |
\ .
,
t p T H s s
(2.7)
Because I
1
(T
P
) = I
2
(T
P
), T
P
approximately satisfies the equation.

( )
( )
2
2
1 1
( )
2 2
P p
p p
p d T T d H T H T u u
( | |
= +
|
(
\ .
(2.8)

( ) ( )
1
1
2
p p p
d
T H T H T
p d
u
(
= +
(

(2.9)

Inventory












Time




0 T
d
T
p
H

Figure 2: Inventory System with Production Disruptions
11

Since

( )
( )
2
1
0
2
p
P
p
d H T
dT
d
p d H T
u
u

= >
+
(2.10)
We can get the following corollary.
Corollary 2.1. Assuming that 1 u << , then
p
T is increasing in u .
That is, the manufacturer has to produce more products when deterioration rate
increases. Hence decreasing deterioration rate is an effective way to reduce the
product cost of manufacture.

2.2 The Production-Inventory Model under Production Disruptions
Let us consider the production disruptions time is Td. Then the new disrupted
production rate is p p +A , where
0 p A > , if production rate decreases
0 p A < , if production rate increases

Preposition 2.2.1:
If
( )
( )
( )
( )
1
1
H T
H
d
p d e
p
e
u
u

A >

, then the manufacturer can still satisfy the demand after

production disruptions. Otherwise, that is,
( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

, there will
exist shortages due to the production disruptions.
Proof:
We have
I
1
(t) =
( ) p d
u

( 1 - e
t u
) 0 t p T s s

11


The new disrupted production rate is obtained by the differential equation
( )
2
2
( )
I t d ; t
d
dI t
p p T H
dt
u + = +A s s (2.11)
Using
( )
1 2
( ) ( ) 1
T
d
d d
p d
I T I T e
u
u

| |
= =
|
\ .
(2.12)
The solution is
( )
2
( )
t t
I t e P d p e dt c
u u
= +A +
}


2
( ) ( )
t
t
e
I t e p d p c
u
u
u
= + A +
(2.13)
From (2.12),
( )
2
( )
T T
d d
I t e P d p e dt c
u u
= +A +
}


2
( ) ( )
T
d
T
d e
I t e p d p c
u
u
u
= + A +


( )
( ) 1
T
d
T T
d d
p d e
e e p d p c
u
u u
u u

= +A +

( )
1 T
d
c p d pe
u
u

(
= +A
(


Substitute c value in (2.13), we get

( )
2
1
( ) ( )
t
T
t
d
e
I t e p d p p d pe
u
u
u
u u

(
= + A + +A
(


( )
( )
0
H T
H
d
p d p d e p pe
u
u

+A A >

( )
( )
2
1 1
( ) ( )
t T
t
d
I t p d p p d e pe
u
u
u u

(
= + A A
(



( )
( )
2
1
( ) ( )
H T
d H
I H p d p pe p d e
u u
u

(
= + A A
(

(2.14)
11


( )
( )
2
1
( ) ( )
H T
d H
I H p d p pe p d e
u u
u

(
= + A A
(

(2.15)
If
2
( ) 0 I H >
, then
( )
( )
0
H T
H
d
p d p d e p pe
u
u

+A A >

( )
1 1 0
H T
H
d
p d e p e
u
u

(
(
+A >
(



( )
( ) 1 1
H T
H
d
p e p d e
u
u

(
(
A >
(



( )
d
d T d
p 1
(T ) T
p p
1
d
T H
d
p d pe p d e e e p
u
u u u
u u
(
(
(
(
(
(
(

+ A = A
This means that the manufacturer can still satisfy the demand after production
disruptions.
If
2
( ) 0 I H s
, then the manufacturer will face shortage since the production rate
decreases deeply. That is

( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

Hence the Proof.
Note: We know that if
( )
( )
1
1
H
H T
d
p d e
p
e
u
u

(


A >
(

(

, the production inventory problem
is to find the new optimal production period
d
p
T . If
( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

,
the production-inventory problem is to find the optimal replenishment time T, and
replenishment quantity Q
r
.


11

Preposition 2.2.2:
If
( )
( )
1
1
H
H T
d
p d e
p
e
u
u

(


A >
(

(

, then the manufacturers production time with
production disruptions is
( )
ln 1
1
d
p
T
H T
d
p d e pe
p p
u u
u
+ +A
=
+A
.
Proof:
From Preposition 2.2.1, we know that the new production time
d
,
p
T T H
d
( e

, if
( )
( )
1
1
H
H T
d
p d e
p
e
u
u

(


A >
(

(

. The inventory model can be depicted as shown in figure.
Inventory










0 T
d

Tp

d
p
T H Time
New Inventory Curve after Disruptions
Figure 3: Inventory System
( )
d
,
p
T T H
d
( e


11

Since
( )
( )
1
1
H
H T
d
p d e
p
e
u
u

(


A >
(

(

, the inventory system after disruptions can be
represented by the following differential equations.

( )
( )
3
3
2
2
d
p
( )
I t p+ p d; t T
( )
I t d; T t
d
dI t
T
dt
dI t
H
dt
u
u
+ = A s s
+ = s s
(2.16)
Using the Boundary Conditions

( )
1 2
( ) ( ) 1
T
d
d d
p d
I T I T e
u
u

| |
= =
|
\ .

From (2.15), we have
( )
( )
2
1 1
( ) ( )
t T
t
d
I t p d p p d e pe
u
u
u u

(
= + A A
(


( )
( )
{ }
d
2 p
1
( ) ( ) , t T
t T
t
d
d
I t p d p p d e pe T
u
u
u

(
= +A A s s
(


Using the Boundary Conditions,
3
( ) 0 I H =

The solution is
( )
3
( )
t t
I t e d e dt c
u u
= +
}


3
( )
t
t
e
I t e d c
u
u
u
= +
(2.17)
Since
3
( ) 0 I H =
,

3
( )
H
H
e
I t e d c
u
u
u
= +


H
e
c d
u
u
=
(2.18)


11

Substitute c value in (2.17), we get

3
( )
t H
t
e e
I t e d d
u u
u
u u
= +


( )
( )
3
( ) 1
H t
d
I t e
u
u

=
(2.19)
Using the Boundary Conditions,
( ) ( )
d d
2 p 3 p
I T I T =
, we get

( )
d
d T d
p
(T ) T
p p
1
d
T H
d
p d pe p d e e e p
u
u u u
u
(
(
(
(
(
(
(

+ A = A

( )
d d d
T T T
p p p
d
T
p
0
H T
d
d p d pe e pe de e d e p
u
u u u u
u

+ + A + = A
( )
d
d d T
p
T T
p p
d
T
p
H
e e e
T
d
d p pe e pe p
u
u u u
u
u
| |

|
\ .

+ + = A + A

( )
d
T
p
1
p p H
e
T
d
pe p d e
u
u
u +A

= A + +


1
d
T
p
T H
d
pe p d e
e
p p
u u
u
| |
|
\ .

A + +
=
+A


( )
1
1
d
T ln
p
H T
d
p d e pe
p p
u u
u

+ A
=
+A
(2.20)
Differentiate the Equation (2.20), we arrive

( ) 1
d
T
p
1
T
d
d p p p e
dT
H T
d
p d e pe
d
u
u
u
u u
| |
|
\ .
+A A

+ +A
=


( )
d
T
p
1
T
d
d p p p e
dT
H T
d
p d e pe
d
u
u
u u
| |
|
\ .
+A A

+ +A
=
(2.21)
11

Corollary 2.2.3: If
( )( )
( )
1
0
1
d
H
H T
p d e
p
e
u
u

| |
|
\ .

sA <

, then
d
T
p
is decreasing in T
d
. If
0 p A > , then
d
T
p
is increasing in T
d .
Proof:
Since
( )
( )
2
1
( ) ( )
t T
d
t
I t p d p pe p d e
u
u
u


(
= + A A
(



( )
( )
2 2
2
2
1 1
( ) ( ) 1 ... 1 1 ...
1! 2! 1! 1!
d d
t T t T t
t
I t p d p p p d
u
u
u u
u u
( ( | |
| | | |

( ( | = + A A + +
` | |
|
( (
\ . \ .

\ . )

Neglecting second and higher powers of u for small value of u , we get

( )
( )
( )
2
2
2
2
1 1
( ) ( ) 1 1 ...
1! 2! 1! 1!
d
d
t T
t T t
t
I t p d p p p p p d
u
u
u u
u u
(
( | |
| |

(
( | = + A A +A A +
` |
( |
(
\ .

\ .
(
)


( ) ( ) ( )
( ) ( )
2
2
2
( )
2 2!
d d
t p d
I t p t T p t T t p d
u
u
(

(
| |
= A A + (
| `
(
\ .

(

)


( ) ( )
( )
2
1 1
( ) 1 1
2
2 2
I t p t T t T t p d t
d d
u u
(
(
=A +
(
(


(2.22)

From (2.19), we have

( )
( )
3
( ) 1
H t
d
I t e
u
u

=


( ) ( )
2
2
3
( ) 1 ... 1
1! 2!
H t H t
d
I t u u
u
(

( = + + +
(


11


( ) ( )
2
2
3
( ) 1
2
d
I t H t H t
u
u
u
(
= + +
(
(


Since
( ) ( )
d d
2 p 3 p
I T I T =
, we get
( ) ( )
( )
( ) ( )
d d d d d d
p p p p p p
1 1 1
T 1 T T 1 T T 1 T
2 2 2
T T
d d
p p d d H H u u u
( | | | |
A + = +
| |
(
\ . \ .

Neglect Exponent Terms, we get

( )
( )
( ) ( )
d d d d
p p p p
1
T T T 1 T
2
T
d
p p d d H H u
| |
A + = +
|
\ .

( )
( ) ( )
d d d
p p p
1
T T 1 T
2
d
p p d pT d H H u
| |
+ A =A + +
|
\ .


( ) ( )
( )
d d
p p
d
p
1
T 1 T
2
T
d
pT d H H
p p d
u
| |
A + +
|
\ .
=
+ A
(2.23)

( )
( )
2
d
d
p
p
d
p
T
T
1
0
2
T
d H
d
d
p p d H
u
u

= >
+ A +
(2.24)
From equation (2.24), we can get the following corollary 2.2.4

Corollary 2.2.4: Assuming that 1 u << , then
d
p
T is increasing in u

Proof:
If
( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

, there will exist shortage. The manufacturer

will have to produce products during the whole planning horizon, that is,
d
p
T H = . In
order to avoid shortage, the manufacturer needs to order products from spot markets to
satisfy the demand. The inventory model can be depicted as shown in figure.
11

Preposition 2.2.5: If
( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

, then the replenishment time and

quantity are

1
ln
T
d
r
p d pe
T
p p d
u
u
+A
=
+A
(2.25)

( )
1
H T
r
r
p p d
Q e
u
u
+A
(
=
(

(2.26)
Proof:
Inventory







Time
0 T
d

Tp
T
r

d
p
T H =
New Inventory Curve after disruptions
Figure:4 Inventory system
( )
d
T
p
H =
We need to determine the order time point
r
T .
Let
( )
( )
2
1
( ) ( )
t T
d
t
I t p d p pe p d e
u
u
u


(
= + A A
(

= 0
( )
T t t
d
pe e p d e p p d
u u u
A = +A

( )
T t
d
e p e p d p p d
u u
(
A = +A


11


( )
T
d
t
p d p e
e
p p d
u
u
A
=
+A

The order time Point is
r
t t = .
Hence
1
ln
T
d
r
p d pe
T
p p d
u
u
+A
=
+A
(2.27)
( )
3
3
( )
I t d
dI t
p p
dt
u + = + A
Using the Boundary Conditions
( )
3
I 0 H = , we get
The solution is
( )
( )
3
t
e
t
I t e p p d c
u
u
u
= +A + (2.28)
( ) ( )
3
H
H
e
I t e p p d c
u
u
u
= +A +
( )
H
e
c p p d
u
u
= +A
Substitute c value in (2.28), we arrive
( ) ( ) ( )
3
t
t H
e e
I t e p p d p p d
u
u u
u u
= +A +A

( )
( )
( )
3
t H t
p p d
I t e e e
u u u
u
=
+A

( )
( )
( )
3
1
H t p p d
I t e
u
u

=
+A

(
(

Therefore the order quantity is

( )
3
Q I t
r r
=


( )
1
p p d
H T
r
Q e
r
u
u
+A
| |
=
|
\ .
(2.29)
Hence the Proof.

11

Note: If
( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

, then from (2.25), we have

1
ln
T
d
r
p d pe
T
p p d
u
u
+A
=
+A


1 ( )
( )
T
d
r
T
d
d
dT
p d p p e
dT
p p d pe
u
u
u
u
| |
+ A A
= |
|
+A A
\ .


( )
0
( )
T
d
r
T
d
d
dT
p d p pe
dT
p p d pe
u
u
| |
+ A A
= < |
|
+A A
\ .
, (2.30)

( )
( ) 0
r
H T
r r
d d
dQ dT
p d p e
dT dT
u
u

= + A <





20
19.5
19
18.5
18
17.5
17
16.5
0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08
Figure 5:
d
T
p
with respect to u

11



20
19
18
17
16
15
14
13
12
0 2 4 6 8 10 12 14 16

Figure 6:
d
T
p
with respect to
d
T .
Corollary 2.2.6: If
( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

, then
r
Q and T
r
are decreasing in
d
T .
Proof:
We have,

( )
( )
( )
( )
1
1
H
H T
d
p d e
p p
e
u
u

s A <

From (2.25), we have

1
ln
T
d
r
p d pe
T
p p d
u
u
+A
=
+A

11


1 ( )
( )
T
d
r
T
d
d
dT
p d p p e
dT
p p d pe
u
u
u
u
| |
+ A A
= |
|
+A A
\ .



( )
0
( )
T
d
r
T
d
d
dT
p d p pe
dT
p p d pe
u
u
| |
+ A A
= < |
|
+A A
\ .


0
r
d
dT
dT
<

is decreasing in T T
r d
.
Here

( )
1
H T
r
r
p p d
Q e
u
u

+A
(
=
(



( )
( )
( )
0 1
r
H T
r r
d d
dQ dT
p d p
e
dT dT
u
u
u

+ A
(
=



( )
( ) 0
r
H T
r r
d d
dQ dT
p d p e
dT dT
u
u

= + A <


0
r
d
dQ
dT
<

Hence
r
Q is increasing in
d
T .
Hence the proof.