J. Appl. Math. & Computing Vol. 12(2003), No. 1 - 2, pp.

251 - 260

AN ECONOMIC PRODUCTION QUANTITY INVENTORY

MODEL INVOLVING FUZZY DEMAND RATE AND FUZZY
DETERIORATION RATE

SUJIT KUMAR DE, P.K. KUNDU AND A.GOSWAMI

Abstract. Generally, in deriving the solution of economic production

quantity (EPQ) inventory model, we consider the demand rate and de-
terioration rate as constant quantity. But in case of real life problems, the
demand rate and deterioration rate are not actually constant but slightly
disturbed from their original crisp value. The motivation of this paper is
to consider a more realistic EPQ inventory model with finite production
rate, fuzzy demand rate and fuzzy deterioration rate. The effect of the
loss in production quantity due to faulty/old machine have also been taken
into consideration. The methodology to obtain the optimum value of the
fuzzy total cost is derived and a numerical example is used to illustrate the
computation procedure. A sensitivity analysis is also carried out to get the
sensitiveness of the tolarance of different input parameters.

AMS Mathematics subject classification : 90B05

Key words and phrases : Fuzzy demand rate, fuzzy deterioration rate,
membership function, aspiration level α, inventory, fuzzy total cost.

1. Introduction

Inventory models for deteriorating items have been studied by researchers

from time to time. Deterioration of an item occurs in the cases such as decay,
evaporation, obsolescence, loss of utility or marginal value of a commodity, gaso-
line, fertilizers, different types of oils, milks, medicines etc. Inventory models
for different deteriorating items have been developed by several researchers in
past and recent years. Ghare and Schrader [9] has developed an EOQ model for
exponentially decaying inventory. An EOQ model for items with variable rate of
deterioration has been developed by Covert and Philip [11] by introducing two

Received June 22, 2002. Revised February 24, 2003.

c 2003 Korean Society for Computational & Applied Mathematics .

251
252 S. K. De, P. K. Kundu and A. Goswami

parameter weibull distribution. Philip [4] developed a three parameter weibull

distribution for the deterioration time. EOQ models assuming different types of
deterioration rate have also been developed by several researchers (see [3], [7],
[8], [13], [14]).

In the development of economic production quantity, usually researchers con-

sider the demand rate, deterioration rate as constant in nature. But, in general
these quantities will have little deviations from the exact value. Thus in practi-
cal situations, these variables should be treated as fuzzy variables. In the recent
years, some research work has been carried out in this direction. Vahidian and
Tareghian [2] made a paper on production planning in fuzzy environment. Jalan
and Chaudhuri [1] developed an EOQ model for deteriorating items in a declin-
ing market with SFI policy. An EPQ model for fuzzy demand quantity and
fuzzy production quantity was developed by Lee and Yao [6]. De and Goswami
[12] developed an EPQ model assuming the deterioration rate as fuzzy number.
To the authors knowledge, an EPQ model assuming demand rate and dete-
rioration rate as fuzzy number have not been considered by researchers. In the
real life, demand is not always a constant quantity to a seller of a market neither
deterioration rate of an item can be predicted exactly. In this article, we have
developed an EPQ model with finite production rate, fuzzy demand rate and
fuzzy deterioration rate. The loss of production quantity due to faulty/old ma-
chine, manufacturing defect etc. have also been taken into account. The solution
for minimizing the total fuzzy cost function have been derived with the help of
max-min operator by Bellman and Zadeh [10], and following Zimmermann [5].
The solution procedure have been illustrated by one numerical example and a
sensitivity analysis has also been carried out.

2. Assumptions and notations

The following notations have been used in the development of the model :
i) k : production quantity per unit time.
ii) d : demand rate per unit time.
iii) d˜ : fuzzy demand rate per unit time.
iv) θ : deterioration rate of the on-hand inventory per unit time.
v) θ̃ : fuzzy deterioration rate of the on hand inventory per unit time.
vi) φ : deterioration fraction of production rate per unit time.
vii) k(1 − φ) : actual production per unit time.
viii) C1 : constant inventory holding cost per unit item.
ix) r : constant purchase cost of raw material per unit item.
x) b : constant set up cost per order.
xi) p : constant selling price of the production per unit item.
xii) q : actual production quantity received per cycle.
xiii) t1 : production time per cycle.
 An EPQ inventory model with fuzzy demand and deterioration rate 253

xiv) t2 : length of each cycle.

xv) T : the whole period for the plan.
xvi) q1 : inventory level at any time t where 0 ≤ t ≤ t1 .
xvii) q2 : inventory level at any time t where t1 ≤ t ≤ t2 .

The following assumption are made in developing the model:

i) Shortages are not allowed and lead time is zero.
ii) The linear membership function for fuzzy demand rate d˜ is given by
⎧
⎨ 1 f or d ≥ d0
µ1 (d) = 1 − d0p−d
1
f or d0 − p1 ≤ d ≤ d0
0 f or d ≤ d0 − p1
⎩

iii) The linear membership function for fuzzy deterioration rate θ̃ is given by
⎧
⎨ 1 f or θ ≥ θ0
θ0 −θ
µ1 (θ) = 1 − p2 f or θ0 − p2 ≤ θ ≤ θ0
0 f or θ ≤ θ0 − p2
⎩

where d and θ are positive variables; d0 and θ0 are initial assumptions of the
demand rate and deterioration rate respectively and p1 , p2 are their respective
tolarances.

3. Crisp Model

Production starts at the beginning of each cycle at time t = 0 and continues

upto time t = t1 . Due to faulty machines, the observed production rate becomes
less than the original production rate as the quantity deteriorates at the time
of production. The inventory accumulated during the production period t1 af-
ter meeting up demand during the period (0,t1 ) and loss due to deterioration,
reaches to the zero level at time t = t2 . Then the cycle repeats itself for the
entire time period T . The instantaneous states of the inventory levels q1 and q2
can be described by the following differential equations:
dq1
+ θq1 = k(1 − φ) − d 0 ≤ t ≤ t1 (1)
dt
dq2
+ θq2 = −d t1 ≤ t ≤ t2 (2)
dt
with the conditions
q1 (0) = 0; q1 (t1 ) = q2 (t1 ) and q2 (t2 ) = 0 (3)
Solving (1) and (2), and using (3), one can easily obtain

k(1 − φ) − d
q1 (t) = (1 − e−θt ) 0 ≤ t ≤ t1 (4)
θ
254 S. K. De, P. K. Kundu and A. Goswami

d θ(t2 −t)
{e
q2 (t) =− 1} t1 ≤ t ≤ t2 (5)
θ
The holding cost (HC) during the period [0,t2 ) is

 t1  t2 
C1 q1 (t)dt + q2 (t)dt
0 t1

t21 θt3 (t2 − t1 )2 θ(t2 − t1 )3

  
= C1 {k(1 − φ) − d} − 1 +d + (6)
2 6 2 6
The cost for the loss of production quantity per cycle due to faulty machine

(LP ) = rkpt1 (7)

Now q1 (t1 ) = q2 (t1 ) gives
q θt1 θq 2
t2 = (1 + )− 2
d 2 2d

Also, q = k(1 − φ)t1 and

T
the number of cycles = (8)
t2
The cost for the loss of stock due to deterioration per cycle (LS)
 t1  t2 
= pθ q1 (t)dt + q2 (t)dt
0 t1

= k(1 − φ)t1 − d t2 [using (8)] (9)

Using the relation (6), (7), (8) and (9), we obtain the total inventory cost

T
Z(q, d, θ) = (HC + LS + LP + b)
t2
2
t21 θt3 d(t2 − t1 )
= (C1 + pθ) (k − kφ − d) − 1 +
2 6 2
 
3
dθ(t2 − t1 ) T
+ + rkφt1 + b
6 t2

which reduces, after some elementary manipulation, to the following form:

θ
Z(q, d, θ) = A1 + θA2 + dA3 − dθA4 − A5 (10)
d
 An EPQ inventory model with fuzzy demand and deterioration rate 255

where
C1 qT
A1 = ,
2
rqφ T
A2 = pq + +b ,
1−φ 2
 
b rφ C1 q
A3 = + − T,
q 1 − φ 2k(1 − φ)
C1 q 2
 
rqφ + (b + pq)(1 − φ) T
A4 = − ,
k(1 − φ)2 6k 2 (1 − φ)2 2
C1 q 2 T
and A5 = and θ, d > 0 (11)
12
It may be mentioned that the results obtained here are in full agreement with
those results obtained by Lee & Yao [6] when φ → 0 and θ → 0.

4. Solution procedure of the corresponding fuzzy model

In the development of EOQ models, previous authors have assumed that

both the deterioration rate and the demand rate are constant. But in the real
situation it is not always easy to determine the exact value of deterioration rate
and in most of the cases the demand rate is uncertain in nature. This has led
us to consider the deterioration rate θ and the demand rate d as fuzzy number
θ̃ and d˜ respectively.
Thus the cost function (10) can be redefined as


M in Z(q, d, ˜ 3 − d˜θ̃A4 − θ̃ A5
˜ θ̃) = A1 + θ̃A2 + dA (12)
d˜
where Ai ’s are known and can be expressed by (11) for i=1, 2, 3, 4 and 5. [Wavy
bar (˜) represents the fuzzyfication of the parameter].

5. Mathematical Analysis

A fuzzy non-linear programming problem (FNLPP) may be defined as



M in g0 (x, ỹ)
(13)
x≥0
˜ θ̃)T is the fuzzy co-efficient vectors of g0 .
where ỹ = (d,
From fuzzy set theory the fuzzy objective and co-efficients are defined by
their membership functions which may be linear and/or non-linear. Here we
have assumed µ0 , µy as the non-increasing and non-decreasing continuous linear
256 S. K. De, P. K. Kundu and A. Goswami

membership function, for objective and negative fuzzy co-efficient vectors ỹ of

the objective function g0 , respectively, and these are

1 f or g0 (x) < Z0
⎧
⎨
µ0 (g0 (x)) = 1 − g0 (x)−Z
p0
0
f or Z0 ≤ g0 (x) ≤ Z0 + p0
0 f or g0 (x) > Z0 + p0
⎩

and µy (u) = (µy1 (u), µy2 (u))

where ⎧
⎨ 1 f or u > d0
d0 −u
µy1 (u) = 1 − p1 f or d0 − p1 ≤ u ≤ d0
0 f or u < d0 − p1
⎩

and ⎧
⎨ 1 f or u > θ0
µy2 (u) = 1 − θ0p−u2
f or θ0 − p2 ≤ u ≤ θ0
0 f or u < θ0 − p2
⎩

Now exploiting max-min operator, which was first developed by Bellman and
Zadeh [10] long back and subsequently used by Zimmermann [5], etc. the solu-
tion of the FNLPP (13) can be obtained from

Max α
−1
subject to g0 (x, µ−1
y (α)) ≤ µ0 (α)

x ≥ 0, α ∈ [0, 1]
−1 −1
where µ−1
y (α) = {µy1 (α), µy2 (α)} (14)
For the proposed fuzzy model given by (12), we define the membership func-
tion of fuzzy inventory minimum cost, fuzzy demand rate and fuzzy deterioration
rate as follows :

1
⎧
⎨ f or Z(q) < Z0
Z(q)−Z0
µ0 (Z(q)) = 1− p0 f or Z0 ≤ Z(q) ≤ Z0 + p0
0 Z(q) > Z0 + p0
⎩
f or
⎧
⎨ 1 f or u > d0
d0 −u
µd (u) = 1− p1 f or d0 − p1 ≤ u ≤ d0
0 f or u < d0 − p1
⎩
⎧
⎨ 1 f or u > θ0
θ0 −u
µθ (u) = 1− p2 f or θ0 − p2 ≤ u ≤ θ0
0 f or u < θ0 − p2
⎩

where q, u are positive variables, d0 , θ0 and Z0 are the initial assumptions of

demand rate, deterioration rate and objective goal respectively and p1 , p2 and
p0 are their respective tolarences.
 An EPQ inventory model with fuzzy demand and deterioration rate 257

Now using (14), the fuzzy model given by (12) reduces to the following form:

Max α
subject to Z(q, α) ≤ Z0 + (1 − α)p0

where Z(q, α) = A1 + {θ0 − (1 − α)p2 }A2 + {d0 − (1 − α)p1 }A3 −

θ0 − (1 − α)p2
{θ0 − (1 − α)p2 }{d0 − (1 − α)p1 }A4 − A5
d0 − (1 − α)p1
q ≥ 0, α ∈ [0, 1] (15)

TABLE 1

q∗ −q ∗ Z∗ −Z ∗
para- % q∗ θ∗ d∗ Z∗ q∗ · Z∗ ·
meter change 100 % 100 %

C1 +50 11.27412 0.00000 1.60000 5150.000 29.15 -1.46

+20 12.83628 0.00048 1.64763 5140.474 19.34 -1.27
-20 13.80709 0.00400 2.00000 4687.407 13.24 7.65
-50 14.28115 0.00400 2.00000 3970.533 10.26 21.77
b +50 16.91118 0.00000 1.60000 5150.000 -6.27 -1.46
+20 15.40360 0.00047 1.64731 5140.538 3.20 -1.28
-20 23.07001 0.00400 2.00000 5070.000 -44.97 0.11
-50 13.05863 0.00400 2.00000 3626.280 17.94 28.55
k +50 14.55776 0.00245 1.84511 5100.979 8.52 -0.50
+20 15.16239 0.00313 1.91344 5087.312 4.72 -0.23
-20 21.24170 0.00400 2.00000 5070.000 -33.48 0.11
-50 18.95788 0.00400 2.00000 4384.224 -19.13 13.62
d0 +50 18.76094 0.00000 2.60000 5150.000 -17.89 -1.46
+20 16.23238 0.00079 2.07937 5134.126 -2.00 -1.15
-20 21.20742 0.00400 1.60000 5070.000 -33.27 0.11
-50 23.66621 0.00400 1.00000 5070.000 -48.72 0.11
T +50 13.80791 0.00000 1.60000 5150.000 13.23 -1.46
+20 13.80792 0.00000 1.60000 5150.000 13.23 -1.46
-20 31.54862 0.00400 2.00000 5027.256 -98.25 0.96
-50 05.90421 0.00400 2.00000 3874.788 62.90 23.66
Z0 +50 31.54862 0.00400 2.00000 6284.070 -98.25 -23.81
+20 29.78590 0.00400 2.00000 6084.000 -87.17 -19.86
-20 13.80792 0.00000 1.60000 4136.000 13.23 18.51
-50 13.07500 0.00000 1.60000 2615.000 17.84 48.48
258 S. K. De, P. K. Kundu and A. Goswami

TABLE 2

q∗ −q ∗ Z∗ −Z ∗
para- % q∗ θ∗ d∗ Z∗ q∗ · Z∗ ·
meter change 100 % 100 %
p +50 15.87684 .00394 1.99380 5971.221 .23 .09
+20 15.88363 .00395 1.99465 5071.071 .19 .09
-20 15.88981 .00396 1.99565 5070.868 .15 .10
-50 15.89982 .00396 1.99642 5070.716 .09 .10
r +50 15.88470 .00395 1.99498 5071.004 .18 .09
+20 15.88521 .00395 1.99508 5070.983 .18 .09
-20 15.88590 .00395 1.99522 5070.956 .17 .09
-50 15.88640 .00395 1.99532 5070.936 .17 .09
φ +50 15.89971 .00396 1.99635 5070.731 .09 .10
+20 15.88979 .00396 1.99563 5070.874 .15 .10
-20 15.88367 .00395 1.99467 5071.065 .19 .09
-50 15.87697 .00394 1.99397 5071.206 .23 .09
θ0 +50 15.89456 .00587 1.98725 5072.549 .12 .06
+20 15.89094 .00472 1.99199 5071.602 .14 .08
-20 15.88556 .00318 1.99832 5070.336 .18 .11
-50 16.48438 .00200 2.00000 5070.000 -3.59 .11
p0 +50 15.89056 .00396 1.99553 5071.342 .14 .09
+20 15.88884 .00395 1.99531 5071.126 .15 .09
-20 15.88510 .00395 1.99498 5070.803 .18 .10
-50 15.88584 .00395 1.99471 5070.529 .17 .10
p1 +50 15.88668 .00397 1.99479 5070.694 .16 .10
+20 15.88796 .00396 1.99498 5070.837 .16 .10
-20 15.88910 .00394 1.99539 5071.152 .15 .09
-50 15.89179 .00392 1.99599 5071.606 .14 .08
p2 +50 15.88889 .00393 1.99525 5070.951 .15 .09
+20 15.88962 .00394 1.99519 5070.962 .15 .09
-20 15.88886 .00396 1.99511 5070.977 .15 .09
-50 15.88856 .00398 1.99505 5070.989 .16 .09

It may be mentioned here that the constraint inequalities of the optimization

problem defined by (15) are highly non-linear in nature. Due to non-linearity, it
becomes very difficult to obtain the closed form analytical solution of the above
mentioned optimization problem. However we have solved the above FNLPP,
numerically, by using the software LINGO. The method is illustrated by an
example in the following section.

6. Numerical example
 An EPQ inventory model with fuzzy demand and deterioration rate 259

The model is described in this paper is supported by a numerical example. In

fact we have considered here a simple numerical example to illustrate the crisp
and the corresponding fuzzy model. Let C1 = 10, b = 500, T = 40, p = 3, r =
1, k = 10, φ = .005, d = 2, θ = .004, d0 = 2, θ0 =.004, p1 =.5, p2 =.005, p0 =100,
Z0 =5070 in appropriate units. Using the software LINGO, the solution of the
crisp model is obtained as, optimal order quantity q∗ = 15.91341 and the optimal
total inventory cost Z∗ = 5075.76835.
For the case of fuzzy demand rate and fuzzy deterioration rate, the corre-
sponding optimal solution for the fuzzy model is obtained as q ∗ = 15.88555 and
Z ∗ = 5070.970 respectively where θ∗ = .00395 and d∗ = 1.995.

7. Sensitivity Analysis

In this section, we have examined the sensitiveness of the decision variables

q, θ̃, d˜ and Z̃ when each of the parameters C1 , b, k, d0 , T and Z0 (shown in Table
1) and the parameters p, r, φ, θ0 , p0 , p1 and p2 (shown in Table 2) being changed
from -50% to +50%. The relative changes of the order quantity q ∗ and the total
inventory cost Z ∗ are also been taken into account.

From Table 1, it is shown that the optimum order quantity q is moderately

sensitive and the optimum system cost Z is low sensitive for changing in the
parameters C1 , b, k, d0 , T and Z0 . From Table 2, it is observed that the
optimum order quantity q and the optimum system cost Z is almost insensitive
to changes in the parameters p, r, φ, θ0 , p0 , p1 and p2 .

8. Concluding Remarks

In the development of EPQ model, most of the earlier researchers have con-
sidered the demand rate and the deterioration rate as constant quantity. These
quantities are not exactly constant, but will have little disturbances. This has
led us to develop an EPQ inventory model with finite production rate, fuzzy
demand rate and fuzzy deterioration rate. Loss of production incurred due to
faulty/aged machines have also been taken into account by considering a frac-
tion of production rate deteriorates per unit time. Membership functions of
fuzzy demand rate, fuzzy deterioration rate and fuzzy total minimum cost have
been defined. A theory based on Max-Min operator, developed by Bellman and
Zadeh [10] and subsequently used by Zimmermann [5] has been used to minimize
the fuzzy total cost function.
The solution procedure is illustrated with the help of one numerical exam-
ple. A sensitivity analysis of the various parameters of the model have also
been carried out. Table 1 shows highly sensitive parameters and Table 2 shows
260 S. K. De, P. K. Kundu and A. Goswami

less/not sensitive parameters of the decision variable q and Z with the changes
of different parameters of the model.

References

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A. Goswami* received his M.Sc. and Ph.D. degree from Jadavpur University, India in
the years 1985 and 1992 respectively. In 1992 he joined the Indian Institute of Technology,
Kharagpur, India where at present he is Associate Professor in Mathematics Department.
His research interests focus on fuzzy inventory control/ optimization, fuzzy database sys-
tems, distributed databases, object oriented databases and data mining techniques under
fuzzy environment.

S.De** received his M.Sc. degree from Vidyasagar University, India, in the year 1995. In
2000 he joined as a lecturer in Mathematics at Panskura Banamali College, Midnapore,
India and started his Ph.D. at Vidyasagar University since 1998. His research interests are
about inventory control/ optimization under fuzzy environment.
*Department of Mathematics, Indian Institute of Technology, Kharagpur - 721 302, India.
**Department of Applied Mathematics with Oceanology and Computer Programming,
Vidyasagar University, Midnapore - 721 102, West Bengal, India.