Inventory Management Model of Linear Demand with Variable Holding Cost under Inflation with Salvage Value

Abstract

The purpose of this study is to give a thorough analytical model for an inventory system that operates under the simultaneous influences of inflation, time-dependent holding costs, and the existence of a salvage value that is recognized at the end of the planning horizon. In today's dynamic economic climate, inflation has a substantial impact on buying power and cost parameters. On the other hand, holding costs often alter over time as a result of changes in storage, energy, and capital expenses. Recognizing these facts, the model incorporates key economic aspects into a single cohesive framework in order to increase the accuracy and applicability of choices about inventory management. The assumption is made that the rate of demand for the item will follow a linear trend with regard to time. This is a representation of true market conditions in which demand either increases or decreases continuously throughout the course of a product's life cycle. Examples of such products are seasonal goods, technology items, and perishable commodities. The model overcomes the limits of previous EOQ-based techniques, which assume constant demand and fixed costs, by including this time-varying demand pattern. This takes the model beyond the restrictions of the old approaches. The fundamental purpose of the model that has been developed is to establish the ideal replenishment strategy that minimizes the overall relevant cost. This cost comprises the cost of ordering, the cost of purchasing, and the cost of holding, and it also takes into consideration the time value of money when inflationary circumstances are present. A present value analysis is used in the formulation in order to guarantee that all future expenditures and revenues are suitably discounted in order to accurately represent their actual levels of economic relevance. In addition, the incorporation of salvage value at the conclusion of the inventory cycle enables the model to account for the possibility of capital recovery via the resale, recycling, or residual disposal of unsold goods. This is an aspect that is sometimes overlooked in traditional models. For the purpose of demonstrating how various characteristics, such as the rate of inflation, the variability of holding costs, and the size of salvage value, impact the ideal order quantity and cycle duration, the mathematical framework that has been established is supported by numerical examples. In conclusion, a sensitivity analysis is carried out in order to provide management insights into the behavior of the model in response to changing economic and operational variables. According to the findings, a rise in the rate of inflation or the development of holding costs has a tendency to shorten the ideal replenishment cycle. On the other hand, a greater salvage value stimulates bigger order quantities and longer inventory cycles. The results of this research provide a contribution to both theory and practice by providing a model that is more realistic and adaptive towards the decision-making process regarding inventory in situations that are characterized by inflation.