Determination of Continuous Deterioration Level due to

Changing Demand rates in Inventory

NILESH KUMAR

Research Scholar, Dept. Of. Mathematics, Integral University, Lucknow, India.

Abstract

A significant portion of the retail sector deals with products whose freshness deteriorates with

time and lowers demand at the same price. Later, when it is normal to offer a discount in

order to stimulate sales, the item may start to deteriorate. If chosen wisely, inventory

management could have numerous advantages for the retailer.

The demand rates are changing with and without shortages of the products. This served as an

inspiration for creating and analysing an inventory model in which the demand for a

degrading product is first driven solely by its selling price and then by its level of freshness.

For an inventory model with lost sales shortage, researchers take into account general

deterioration distribution and general demand function. It is demonstrated that net profit is a

conditionally concave function of discount and a concave function of the period with positive

inventory. Significant management insights gained from sensitivity analysis indicate that

certain policies run opposed to those that merchants often implement, while others align with

popular practices.

In this study, a brief introduction will be provided where the guidelines will be applied to

manage inventory and keep up the quality of the products so that the demand rate is satisfied.

The research will focus on the problems of the deterioration of Inventory with and without

shortages and Different Demand rates. The chosen methodology will be a mixed approach

with primary qualitative and secondary qualitative data analysis. The research finds out that

meeting customer demand and maintaining product stock is possible by applying a quick

1
functioning inventory control system. The research has also given recommendations on

maximising the profit function and control inventories while keeping them at optimum level.

Keywords: Inventory Model, Dependent Demand, Deteriorating Conditions, Shortage

levels

Introduction

Inventory theory seeks to provide guidelines that managers can apply in order to reduce the

expenses related to keeping inventory levels high and satisfying consumer demand. The

"Inventory management system" was created to replace the manual system that was in use at

the time and solve its issues. This software is intended to remove, or at least lessen, the

difficulties this current system presents. Additionally, this system is tailored to the specific

requirements of the business to ensure efficient and successful operation.

In addition to reducing errors as much as possible during data entry, the application also

displays error messages when incorrect data is entered. To operate this system, a user is not

required to possess any formal knowledge. This alone demonstrates that it is user-friendly. As

previously mentioned, an inventory management system can result in a secure, dependable,

quick, and error-free management system. Instead of focusing on the recordkeeping, it can

help the user focus on other things. As a result, it will aid the Organisation in making better

use of its resources.

All organisations, regardless of size, face obstacles in handling inventory, stock, sales,

product, category, and customer data. By creating unique personnel management systems that

are tailored to managerial demands because every inventory management system has various

stock needs. This is intended to help with strategic planning and will guarantee that the

company has the appropriate amount of data and specifics in place to support long-term

objectives. Additionally, the solutions have remote access capabilities that lets a company

manage staff from anywhere at any time, perfect for busy executives who are constantly on

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the road. In the end, these technologies will enable a person to handle resources more

effectively [6].

Men, machinery, materials, money, and other resources that are usable inventory. The

inventory is frequently referred to as "stock" when material resources are involved. If

resources are controlled or if there is at least one expense that goes down as inventory rises,

then there is an inventory problem. The goal is to reduce the overall cost, whether it be

anticipated or real. But when inventory influences demand, the goal might also be to

maximise profit.

Background of the research

The primary objectives of inventory management are:

1. To minimise the possibility of disruption in all the function schedules.

2. To maintain sufficient stock of raw material.

3. To maintain the associated cost and time.

4. To ensure that finished goods are available for delivery to customers to fulfil their

demands.

5. To maintain smooth operation and efficient customer service.

6. To protect the inventories against deterioration.

7. To control the inventories and keep it at optimum level.

8. To maximise the profit functions.

To understand what inventory systems are one need to take account of the considerations

such as:

Items that are directly used for manufacturing are included in direct inventories and are

categorised as follows:

(a) Production inventory: Items that go into making the final product, include subassemblies,

components, and raw materials.

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(b) Work in Process Inventory: Products at various stages of production or semi-finished

goods.

(c) Finished Goods Inventory: This refers to the finished goods that are prepared for

distribution to customers or retailers.

(d) Miscellaneous Inventory: Everything including scrap, unsalable and outdated goods,

stationery, and other supplies needed in the manufacturing, sales, and office departments, are

part of inventory.

Indirect or Inventories that aren't directly related to a product:

(a) Transit or pipeline inventories: Also referred to as movement inventories, these include

goods that are presently in the process of being transported, such as coal being moved from a

coalfield to a thermal plant.

(b) Buffer Inventories: These are necessary to guard against supply and demand uncertainty.

A company is fully aware of the average demand for the items it needs, but the actual demand

may differ significantly from the average and even surpass it. In the same way, the typical

delivery time could be significantly longer. Extra inventory of the item is needed in these

circumstances to lower the frequency of stock-outs or backorders. During the lead time, this

surplus inventory above typical demand is referred to as buffer stock (also known as safety

stock or cushion stock).

(c) Decoupling Inventories: The various components of the production system must be

disconnected or decoupled. Decoupling stocks of the item between the multiple machines are

essential for seamless and continuous manufacturing of an item that needs to be processed on

a number of distinct equipment with varying processing times. Decoupling inventories serve

as buffers against fluctuations in work rate, malfunctions or breakdowns of machinery, etc.

(d) Seasonal Inventories: Demand for some commodities varies with the season. For

example, demand for woollen textiles in the winter, air conditioners and coolers in the

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summer, raincoats during the rainy season, etc. It is necessary to keep these items' inventories

full in order to satisfy their strong seasonal demand.

(e) Lot Size Inventories: Buying items in bulk offers the following advantages:

(i) Get a price break

(ii) Lower the cost of purchasing and transportation;

(iii) Lower the cost of handling and receiving.

Hence, rather than buying goods in the precise amounts needed, lots or cycle stocks are

maintained. For instance, a textile company might purchase cotton in large quantities during

the cotton season as opposed to daily purchases.

(f) Anticipation inventories: These are kept on hand in order to satisfy expected demand.

Anticipation inventory includes things like buying crackers well in advance of Diwali, buying

fans ahead of the summer, and stockpiling raw materials in case of an impending transporters'

strike.

To understand the inventory practices it is important to understand the losses due to actual

deterioration, obsolescence or damage in the inventory items. Food, medicines are the most

destroying assets in the inventory and these are mostly in need.

While understanding inventory practices one needs to understand the method of supply

shortages and improper inventory management. Common stockout occurs when a retailer has

a product in stock in its warehouse, but the item isn't available for purchase when the

customer wants it. On the other hand, deterioration can be explained in terms of the process

or action of declining in effectiveness, functionality, or quality: the state of having gotten

worse or corrosion degradation is part of inventory practice. The decline of products in

scholarly norms is part of the deterioration.

In addition to freshness, pricing plays a significant role in determining demand. If a product

is sold at the same price as it was when it was fresh, its declining freshness will result in a

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loss in sales because most consumers have preconceived beliefs and pre-set standards of price

vs quality. Discounts are typically given in these circumstances to increase sales, particularly

in underdeveloped nations. If properly chosen, a discounting scheme may have numerous

advantages. If not, it can result in waste and financial loss. Therefore, it is critical that

managers have access to a decision support system so they can choose the best potential buy

and sales strategies for this significant retail sector [5]. Thus, it becomes essential to talk

about discounting policies for inventory models of deteriorating commodities where demand

is based on price and freshness condition. This is what inspired researchers to create and

analyse an inventory model in which the demand for a deteriorating item is first determined

solely by its selling price and then, when freshness begins to decline, also by the freshness

state. The inventory costs are managed by involving in inventory control models such as:

● Purchase cost

● Inventory carrying or stock holding cost

● Procurement cost (for bought-outs) or setup cost (for made-ins)

● Shortage cost (due to disservice to the customers)

One of the most crucial aspects of commerce, trade, and industry is inventory management.

Choosing the best course of action to reduce the overall cost of the inventory system is

known as an inventory problem. Two questions are typically addressed when making

judgements about inventory problems: when to replace inventory and how much to add to it.

The kind or form of demand during the inventory scheduling period and the likelihood of

experiencing shortages in the inventory are the two factors that have contributed to the vast

range of complexity in the inventory models. Shortages occur in inventory systems when

there is insufficient stock to meet customer demand. Various combinations of these

components or attributes lead to a variety of inventory models with various uses. The cost of

carrying inventory, the cost of experiencing shortages, and the cost of replenishing inventory

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are the three types of expenses that are important in inventory management. It is generally

considered that shortages are backlogged, meaning that shortages that have built up over time

can be replenished right away at the start of the subsequent inventory cycle. It makes sense

that it has a shortfall cost called backlog cost. Decisions on inventory management are

typically based on variables that are within control within the system, taking into

consideration the attributes and presumptions that define the inventory system. The challenge

is determining the precise values of these controllable factors that minimise the overall cost

of inventory.

One common assumption in the fundamental inventory models, like Harris's (1913) economic

order quantity (EOQ) model, is that demand will always remain constant. Nonetheless,

inventory models need to take into account the fact that customers' demands actually

fluctuate over time. Therefore, it is interesting to examine inventory systems with time-

varying demand since it makes it possible to predict the behaviour and evolution of the

inventory in an appropriate way. Numerous scholars have examined inventory models in

which the rate of demand fluctuates over time. Consequently, an approximation method for a

deterministic time-varying demand pattern was investigated by Silver and Meal (1973).

Goods decaying is a normal and frequent occurrence in daily life. Among these commodities

are fruits, foods, veggies, cakes, candies, and medications. Deterioration is the term used to

describe the wear and tear, obsolescence, and gradual loss of value in a product over time. It

is typical for a certain percentage of the stocked products to deteriorate or degrade. As a

result, the product's functionality and usefulness decline. Products like fruits, vegetables,

dairy, meats, seafood, yoghurt, and medications, among others, have a limited shelf life. We

refer to these goods as decaying things. Here, the main concern dairy products which are

prone to damage. Hence, the study needs to focus on the understanding of effects that

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associate with deterioration and find solutions to manage the issues within different demand

rates.

Problem Statement

The problem statement of the research includes understanding the Effect of Deterioration on

Inventory with and without shortages and Different Demand rates.

A dairy company's policy should be created to minimise the average overall cost, especially

in the case of an ice cream factory. Materials' tendency to spoil quickly is a serious problem

and limits planning methods. Lack of freshness—which is particularly apparent in ice cream

that is kept in a steady environment—is one of the most important elements influencing the

rate of deterioration. Furthermore, volatile flavours from the storage environment can seep

into the ice cream. On the other hand, because of the proposed model, the cost of utilising

contemporary preservation technologies has been estimated, and the supplier gains by

choosing the best time cycle duration strategy.

Research Objectives

● To identify the effects of deterioration on inventory, specifically dairy products?

● To analyse how this deterioration can be overcome by involving a preservation

factor to reduce the effects of decaying objects

● To define the process of meeting the demand and how firms must have a supply

of products on hand that can be sold quickly.

Research Questions

● What are the ways to identify the effects of deterioration on inventory,

specifically dairy products?

● What is the process to analyse how this deterioration can be overcome by

involving a preservation factor to reduce the effects of decaying objects?

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 ● How to define the process of meeting the demand and how firms must have a

supply of products on hand that can be sold quickly?

Scope of the study

An integrated method is used to address the inventory's dynamic value change in terms of

deterioration and freshness loss.

• After some time in stock, the start of degradation and the decline in freshness are taken into

consideration in that order.

• The general demand function that is influenced by price and freshness. Scarcities are taken

into account.

• General time-delayed mechanisms for freshness deterioration.

Rationale behind the study

Keeping track of inventory is crucial for the trade. When faced with an inventory challenge,

the goal is to minimise the overall cost of the inventory system using optimal decision-

making based on mathematical techniques including network optimisation, optimum control

analysis, and dynamic programming. The two main considerations that guide judgements

about inventory are usually when to renew it and how much more order to add to it [2].

Inventory is being studied to see if it could result in significant cost savings for enterprises.

Keeping inventory on hand for potential sale or use is standard procedure for many

businesses. Businesses need to keep a stock of quickly-sold products on hand in order to fulfil

demand. The goal of inventory theory is to pinpoint the guidelines that managers can apply to

save inventory costs and satisfy market demand. Most industrial organisations concentrate on

inventory control and solving inventory difficulties, like managing and sustaining inventory

of degrading commodities, in order to attain an ideal total cost in an inventory model.

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This study was chosen to take into account the issues of inventory and manage instantly

deteriorating products. The study also undertakes the factors of the growing and lessening of

demands with or without product shortages.

Significance of the study

Inventory is being studied to see if it could result in significant cost savings for enterprises.

Keeping inventory on hand for potential sale or use is standard procedure for many

businesses. Businesses need to keep a stock of quickly-sold products on hand in order to fulfil

demand. The goal of inventory theory is to pinpoint the guidelines that managers can apply to

save inventory costs and satisfy market demand. Most industrial organisations concentrate on

inventory control and solving inventory difficulties, like managing and sustaining inventory

of degrading commodities, in order to attain an ideal total cost in an inventory model. Hence,

the significance of the study is clearly defined.

Literature Review

Many scholars have approached price-dependent demand with honesty. Inventory models for

degrading commodities were created by Wee, Abad, Mukhopadhyay et al. Chang et al.

taking price dependent demand into consideration. Certain authors have taken into

consideration non-instantaneous degradation [1]. Wu et al., (2018) for instance, employed a

two-parameter exponential degradation distribution for demand that was dependent on

supplies. Maihami, Kamalabadi, and Ghoreishi et al. have taken into consideration price and

time-dependent demand for non-instantaneously disintegrating commodities.

Deterioration is one of the most important variables in inventory modelling management.

Any kind of deterioration includes vaporisation, dryness, spoiling, and damage. Maintaining

the product's freshness until it reaches the buyer is the main problem with deterioration. One

of the key components of inventory analysis (minimising costs and maximising profits) is

deterioration. The inventory system is impacted if the deteriorating objects are not taken out

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of the system. Another class of inventory model was created by Dave and Patel (1981) to

account for the deterioration of items with time-proportional demand and no shortages.

Ouyang (2006) presented an inventory model for things that do not deteriorate

instantaneously in 2006. This approach accounts for a reasonable payment delay. An

inventory model with partial backlog consideration for non-instantaneously deteriorating

commodities was proposed by Uthayakumar et al. (Uthayakumar & Geetha, Citation 2009).

Hasan (2020), discovered a differentiated production technique for products that degrade.

A given product's demand fluctuates based on factors such item pricing, stock availability,

and demand rate. The inventory model was created by Ghare and Scharader (1963), with the

constant rate of demand, constant rate of depletion, and lack of shortages in mind. Several

inventory models for ageing goods have been the subject of recent research by Donaldson

(1977), Goyal (1986), Silver and Meal (1969), Sana and Chaudhuri (2008), and Khanra and

Chaudhri (2003). In these models, demand is typically assumed to be constant and is either

time-dependent or stock-dependent. However, these two elements combine to form any

product. A mathematical model based on quadratic demand was proposed by Sindhuja et al.

(2021), who also took time-dependent demand into account.

There aren't many studies that concentrate on both demand and decline. An inventory model

was presented by Wu et al. (2000) in which deterioration and demand cause inventory to

decline. Bragila et al. (2019) created an inventory model with unpredictable demand and

deterioration.

When perishable goods go through their logistics chain, their rates of deterioration can be

high or variable. A few recent technological developments include breakthroughs in supply

chain management, warehousing, and preservation that have led to the creation of new

technologies that can be used to accurately gauge and control the rate of degradation. In

actuality, a variety of measures, including operational modifications and the purchase of

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specialised equipment, can be taken to regulate and lower the pace of product deterioration.

The supplier can lower financial losses, enhance retailer service, and boost business

competitiveness by making investments to lower the rate of deterioration.

Technology used in preservation is crucial to reducing the deteriorating effect. It can be

applied to properly measure and regulate the rate of deterioration [12]. In actuality, a variety

of measures, including operational modifications and the purchase of specialised equipment,

can be taken to regulate and lower the pace of product deterioration. By making investments

in preservation technology and reducing the pace of degradation, the supplier can minimise

financial losses, enhance the quality of service provided to the retailer, and boost company

competitiveness.

In this situation, a number of companies and institutions must include preservation

technologies into their inventory control systems. The model that was initially introduced

employing preservation technology was by Hsu et al. 2010. Dye and Hsieh (2012) proposed

an optimal replenishment approach with effective investment in preservation technology for

failing items. A production model with a controllable degradation effect was developed by

the authors. Zhang et al. (22014) created a declining inventory model with preservation

technologies under stock-dependent demand. An inventory model for preservation under

trade credit with a deterioration effect was proposed by Yang et al. (2015). Mishra et al.

(2017), suggested a preservation inventory model under-price-dependent demand with

shortage. A mathematical model was suggested by Subhash Chandra Das et al. (2020) based

on the deployment of preservation technologies followed by selling price-dependent demand.

A model based on time-varying holding costs under preservation technology investment was

put forth by Khanna et al. (2020). They have established carbon management plans by

creating an optimal inventory model that addresses decaying objects with preservation

technologies. Priyamvada et al. (2020) offer sustainable manufacturing techniques with

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investments in preservation technologies for things of defective and decreasing quality. A

preservation technology-based inventory model for a non-instantaneous deteriorating

inventory model that takes into account a multi-period trade credit policy and variable

demand based on selling price was developed by Das et al. (2023) A model based on

preservation technique was proposed by Mishra et al. (2017), and Priyamvada et al. (2022)

revisited that paper.

Research Gap

In this paper, an attempt has been made to describe the effects of deterioration on an

inventory model with or without shortages while focusing on demand rates. The study tries to

work on a manageable rate of deterioration by making use of the preservation technology

parameter. When combined with the inventory system, the rate of deterioration becomes a

primary deciding factor [10].

Presenting the constant and controllable holding cost along with preservation allows giving

overall problem description and keeping the overall cost as low as possible. The quality of a

perishable good is influenced by how quickly it deteriorates, and this affects demand. The

way that degradation affects objects and the ways that preservation technology slows down

deterioration.

Using the model helps the supplier at every stage by lowering the order amount and reducing

production loss from deterioration. In addition, by selecting the following variables, the

practitioner must determine not only the conventional order quantity decision but also the

quality control deterioration rate.

1) The commodities' diminishing value

2) Cutting expenses while preserving

3) Demand sensitivity to quality.

Methodology

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NOTATIONS FOR MATHEMATICAL MODEL
The following are the notions involved in the present paper
I ( t )=Inventory leavl at timet
D ( t )=Demant rate at timet
R ( t )=Replenishment rate at time t
h ( t )=Deterioration rate at time t
C ( t )=Deterioration level at time t
S ( t )=Shortage level at time t
H=Holding cost per unit of inventory per time period
C=Shortage cost per unit of unsatisfied demand
h=Deterioration cost per unit of inventory per time period
I 0=Initial Inventery level
C 0=Initial Deterioration level
S0 =Initial Shortage level

ASSUMPTIONS
Continuous inventory level

dI
=R (t )−D ( t )−h ( t ) I ( t ) (2.1)
dt

In the equation (2.1) R ( t ) is the replenishment rate, D ( t ) is the demand rate, I ( t ) is the
inventory level. For dairy products h ( t ) is rate of spoilage or deterioration. The above
equation represents continuous change in inventory level over the time.

Continuous Deterioration level

dC
= ( 1−P ( t ) ) . h ( t ) . I ( t ) (2.2)
dt

In equation (2.2) h ( t ) is the deterioration time, I ( t ) is the inventory level, P ( t ) is the

preservative factor. This equation accounts for the effects of a preservative factor P ( t ) on
reducing the deterioration rate h(t) of dairy products.

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Shortage level
S ( t )=max ( 0 , D ( t ) −I ( t ) ) (2.3)
In equation (2.3) I ( t ) is the inventory level and D ( t ) is the deterioration time. This equation
shows the shortage level at time t.

The above equations (1), (2) and (3) helps firms understand the gap between demand and
available supply, guiding decisions on inventory replenishment and management. These
equations provide a mathematical framework for analyzing the effects of deterioration on
dairy product inventory, exploring preservation strategies, and ensuring the availability of
products to meet demand. By incorporating these equations into inventory management
models, firms can optimize their strategies to minimize losses due to deterioration, maximize
product quality, and meet customer demand effectively.

Figure 1

MODEL FORMULATION AND SOLUTIONS

Mathematical modelling provides a powerful tool to analyze and optimize inventory
management strategies. The model formulation involves expressing the relationships between
inventory levels, replenishment rates, demand rates, and deterioration rates through
differential equations. These equations capture the dynamic behavior of the inventory system
over time.

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The provided set of equations represents the change in inventory level I t over time interval
[0 ,T ] for different intervals, each characterized by different rates of replenishment and
demand. Let's break down these equations and their intervals

{
θ I t− p 1−a , 0 ≤t ≤t 1
d I t θ I t− p2 −a , t 1 ≤t ≤t 2
= θ I t−a , t 2 ≤t ≤t 3 (3.1)
dt
−a , t 3 ≤ t ≤ t 4
p2−a ,t 4 ≤ t ≤T

The boundary conditions here is I ( 0 )=I 0Continuity of Inventory Level at t 1 , t 2 , t 3∧t 4 is

I ¿¿
These conditions ensure that the inventory level remains continuous at the boundaries of each
time interval.

The solutions for the equation (3.1) are as follows:

θ
I t= ( I −( p 1+ a ) e−θt )+ ( p 1+ a ) e−θt ,0 ≤ t ≤ t1 (3.3)
θ−p 1 0

θ (t −t 1) p 2+ a
¿Ce + ,t 1 ≤ t ≤ t 2(3.4)
θ
θ ( t−t 2) a
¿De + ,t 2 ≤ t ≤ t 3 (3.5)
θ
¿−at+ E ,t 3 ≤t ≤t 4 (3.6)
p 2−a
¿ ( 1−e−θ ( t−t ) ) + F (3.7)
4

θ
In the above equations (3.4), (3.5), (3.6), (3.7) C, D, E, F are the constants determined by the
continuity conditions.

The solutions for the inventory level equations (3.3) to (3.7) offer insights into the effects of
deterioration on inventory dynamics. By introducing preservation factors P ( t ) into the
deterioration term of the differential equation, we can modify the deterioration rate and
observe how it affects the inventory over time. This allows us to analyse how different
preservation methods can help mitigate the impact of deterioration.

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 d It
=P ( t ) . ( θ I t− p 1−a ) (3.8)
dt
The boundary condition here is I ( 0 )=I 0 Here I 0=C 1
Separating the variable
dI
=P ( t ) dt (3.9)
θ I t − p1−a

dI
∫ θ I − p −a =∫ P ( t ) dt (3.10)
t 1

Here u=θ I t − p1−a then du=θdI then,

1
∫ u du=θ ∫ dt (3.11)
ln |u|=θt + C1 (3.12)
C 1 is the Constant of Integration

Providing exponentials on both the side on equation (3.12)

|u|=e θt+C (3.13) 1

Removing absolute value from the equation (3.13)

θt +C 1
u=± e (3.14)

C1
Denoting C 2=± e so the equation (3.14) becomes,
θt
θI − p1−a=C 2 e (3.15)

Rearranging equation (3.12) in order to solve I

θt
C 2 e + p 1+ a
I= (3.16)
θ
This the general equation (3.16) for I(t). In order to find specific solution, we considering
Intial condition I ( 0 )=I 0
Applying initial conditions with t=0 and I =I 0 in the general equation (3.16)

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 θt
C 2 e + p 1+ a
I 0= (3.17)
θ

Solving equation (3.17) for C 2

C 2=θ I 0− p1−a (3.18)

Substituting the value of C 2 in general equation (3.16)

θt
(θ I 0− p1 −a)e + p1 +a
I ( t )= (3.19)
θ
Now solving this equation (3.19)
P ( t ) =P0 for simplicity, assuming its constant over each time interval. θ , p 1 ,a , I 0 are the
given constants.
Substituting the values in equation (3.19) for different time intervals.
For 0 ≤ t ≤ t 1
θT
(θ I 0− p1 −a)e + p1 +a
I ( T )= (3.20)
θ

For t 1 ≤ t ≤ t 2
θ (T−t 1 )
(θI (t 1)−p 1−a)e + p 1+ a
I ( T )= (3.21)
θ

For t 2 ≤ t ≤ t 3
(θI (t 2)−p 1−a)eθ (T−t )+ p 1+ a
2

I ( T )= (3.22)
θ

For t 3 ≤ t ≤ t 4
θ (T−t 3 )
(θI (t 3)−p 1−a)e + p 1+ a
I ( T )= (3.23)
θ

For t 4 ≤t ≤T
(θI (t 4 )− p1−a)e θ (T −t )+ p 1+ a
4

I ( T )= (3.24)
θ

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The equation (3.21), (3.22), (3.23) and (3.24) provides the value of I(T) for different time
intervals. This equation solved based on initial conditions and given parameters.

Shortage level equation

S ( t )=max ( 0 , D ( t ) −I ( t ) )
Here, considering the cases where demand D(t ) exceeds inventory level I (t) and where
inventory level is sufficient to meet demand.

D (t )≤ I (t )
There is no shortage, so S ( t )=0(3.25)
D(t )> I (t )
In this case, the shortage is equal to the difference between demand and inventory level so,
S ( t )=D ( t )−I ( t ) (3.26)
Hence, from equation (3.25) and (3.26) the solution for the shortage level equation is written
as:

S ( t )=
{ 0 if D ( t ) ≤ I ( t )
D ( t )−I ( t ) if D(t)> I (t )
(3.27)

This equation (3.27) represents the shortage level at time t based on the comparison between
demand and inventory level. If demand exceeds inventory, the shortage is the difference
between demand and inventory. Otherwise, there is no shortage.

Numerical Examples
Example 4.1: Let’s use some arbitrary values for the parameters and functions involved
replenishment rate R(t) is 100 units per day, Deman rate D(t) is 80 + 10t units per day,
Deterioration rate h(t) is 0.1 units per day, Initial inventory level I (0) is 500 units.
Solutions
dI
=R (t )−D ( t )−h ( t ) I ( t )
dt
dI
=¿ 100 – (80+10.1) – (0.1) (500)
dt

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 dI
=¿ 100 – 90 – 50
dt
dI
=¿-40
dt
Now, integrating both the side with respect to t:

∫ dI =∫ (−40 ) dt
I ( t )=−40 t+C
Applying the initial condition I ( 0 )=500
500=−40∗0+C
C = 500
Hence, the solution I(t) is:
I ( t )=−40 t+500

Example 4.2: Let’s assume Preservative factor P(t) is 0.3 and Initial deterioration level C(0) is
50 units
Solutions
dC
= ( 1−P ( t ) ) . h ( t ) . I ( t )
dt
dC
= (1−0.3 )∗0.1∗(−40t +500)
dt
dC
=0.07∗(−40 t+500)
dt
dC
=−2.8 t+35
dt
Now, integrating both sides with respect to t:

∫ dC=∫ (−2.8 t+35 ) dt

2
C ( t )=−1.4 t +3.5 t+ D
Applying the initial solution C(0) is 50
2
50=−1.4 ¿ 0 +35∗0+ D
D = 50
The solution for C(t) is
2
C ( t )=−1.4 t +3.5 t+50

Example 4.3 Solutions for Shortage Level Equation

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 S ( t )=max ( 0 , D ( t ) −I ( t ) )
Substituting the values of D(t) and I(t)
S ( t )=max ⁡(0 , ( 80+10 t )−(−40 t +500 ) )
S(t) = max (0, 80 + 10t + 40t -500)
S(t) = max( 0,50t – 420)
Since S(t) cannot negative, the expression inside the max function must be greater than or
equal to zero:
Solving for t
50 t ≥ 420
420
t≥
50
t ≥ 8.4
The shortage level S(t) will be zero for t <8.4 days and it will be positive for t ≥ 8.4 days

Sensitivity analysis of example 4.1

Changing
Change(t) Change in percentage
parameters
Δ% in R(t) Δ% in D(t) Δ% in C(t)
t= 0 500 550 10%
t=1 510 560 9.80%
I(t)
t=2 520 570 9.60%
t=3 530 580 9.40%
t=0 100 120 20%
t=1 100 120 20%
R(t)
t=2 100 120 20%
t=3 100 120 20%
t=0 80 90 13%
t=1 90 100 11.10%
D(t)
t=2 100 110 10%
t=3 110 120 9%
t=0 0.1 0.12 20%
t=1 0.1 0.12 20%
H(t)
t=2 0.1 0.12 20%
t=3 0.1 0.12 20%

Sensitivity analysis of example 4.2

21
 Changing parameters Change(t) Change in percentage
Equation C(t) Δ% in C(t)
0.2 40+40t 0
0.3 50+35t 25%
p(t)
0.4 60+30t 50%
0.5 70+25t 75%

Sensitivity analysis of example 4.3

Changing parameters Change Change in percentage

D(t) I(t) Δ% in S(t)
t=0 80 90 12.50%
t=1 90 100 11%
D(t)
t=2 100 110 10%
t=3 110 120 9%
t=0 500 550 10%
t=1 460 510 10.87%
I(t)
t=2 420 470 11.90%
t=3 380 430 13.16%

CONCLUSION
The research findings emphasise the significance of efficient inventory management in retail
operations, specifically in the management of deteriorating inventory items. The study's key
findings are as follows: Effective inventory management systems are essential for meeting
customer demand, ensuring product availability, and optimising profitability. The study
highlights the necessity of efficient inventory control systems to ensure seamless operations
and reduce disruptions. Preservation technology is crucial in reducing the impact of
deterioration on inventory items, particularly perishable goods such as dairy products.
Allocating resources towards preservation technology can effectively mitigate financial
losses, elevate the standard of service, and bolster competitiveness within the retail industry.
This study investigates the intricacies of inventory systems, encompassing diverse categories
of inventory items and the challenges associated with their management. Challenges arising
from supply shortages, improper management, and deterioration necessitate the
implementation of effective inventory control strategies. Ethical considerations are
fundamental to research on inventory management, encompassing the reduction of
environmental impact, the promotion of social responsibility, the guarantee of data privacy

22
and security, and the preservation of transparency and consumer information. In summary, the
study highlights the crucial significance of efficient inventory management strategies,
preservation technology, and ethical considerations in retail operations. Through the
utilisation of mathematical modelling and analytical techniques, businesses can enhance
inventory management practices, reduce expenses, and effectively meet market demands
while maintaining the quality of perishable goods. The study's mathematical modelling
provides valuable insights into strategies for managing inventory, especially when dealing
with deteriorating inventory items. The study showcases the dynamic nature of inventory
systems and the influence of factors like demand rates, replenishment rates, and deterioration
rates on inventory levels through the formulation and analysis of differential equations and
their solutions [14]. The mathematical modelling yielded several significant findings: The
study formulates differential equations to model the temporal evolution of inventory levels,
taking into account variables such as replenishment rates, demand rates, and deterioration
rates. These equations offer a mathematical framework for examining inventory dynamics
and optimising inventory management strategies. By integrating and solving differential
equations, this study obtains solutions for inventory levels, deterioration levels, and shortage
levels at various time intervals. These solutions provide valuable understanding of inventory
system dynamics and the impact of deterioration on inventory levels over a period of time.
The study performs a sensitivity analysis to investigate the influence of altering parameters,
such as demand rates, preservation factors, and initial inventory levels, on the dynamics of
inventory. This analysis facilitates the identification of crucial factors that influence decisions
regarding inventory management and enables the optimisation of strategies for controlling
inventory. Numerical examples exemplify the utilisation of mathematical models in practical
situations, showcasing how these models can be employed to scrutinise inventory systems,
forecast inventory levels, and enhance inventory management practices. In summary, the
mathematical modelling presented in the study offers a rigorous analytical framework for
comprehending and enhancing inventory management strategies when dealing with
deteriorating inventory items.

23
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