Inventory models for perishable items with inventory level dependent

demand rate
Yongrui Duan
a,b,
, Guiping Li
a
, James M. Tien
b
, Jiazhen Huo
a
a
School of Economics and Management, Tongji University, Shanghai 200092, PR China
b
College of Engineering, University of Miami, FL 33146, USA
a r t i c l e i n f o
Article history:
Received 1 June 2010
Accepted 13 December 2011
Available online 24 December 2011
Keywords:
Inventory model
Perishable
Backlog
Inventory dependent demand
a b s t r a c t
This paper presents inventory models for perishable items with inventory level dependent
demand rate. The models with and without backlogging are studied. In the backlogging
model, it is assumed that the backlogging rate is dependent on the waiting time and the
amount of products already backlogged simultaneously. Two cases that holding inventory
is protable or not are studied, respectively. The smallest shelf space to ensure shortage
not occur when holding inventory is not protable is obtained. In the model without back-
logging, it is assumed that the remaining stock at the end of the inventory cycle is disposed
of with salvage value. The necessary and sufcient conditions for the existence and unique-
ness of the optimal solution of these models are investigated. At last, some numerical
examples are presented to illustrate the effectiveness of the proposed model. The model
in this paper is generalization of present ones. In particularly, the model is reduced to Pad-
manabhan and Vrats when d
1
= 0, and Dye and Ouyangs when d
2
= 0. If S = s and d
2
= 0, it is
Chang, Goyal and Tengs model.
2012 Elsevier Inc. All rights reserved.
1. Introduction
Perishable goods are an important part of stocks carried in practice. The analysis of perishable inventory systems has been
the theme of many articles due to its potential applications in sectors like food, chemicals, pharmaceuticals, photography
and blood bank management (see [13] for example). Classical deterministic inventory models consider the demand rate
to be either constant or time-dependent but independent of the stock status. However, for perishable products, such as food,
fashion products, the demand rate may be inuenced by the stock level. It has been noted by marketing researchers and
practitioners that an increase in product shelf space usually has a positive impact on the sales of that product. Recent re-
search such as [46] investigate this problem with different assumptions. In [7], Urban present a comprehensive overview
of literature in this eld.
If the demand rate is dependent on the stock level, there are two factors need to consider when establishing models.
On the one hand, when a product is highly perishable, to contain costs due to deterioration and ordering, the seller may
prefer to backlog demand in order. But not all customers are patient, some customers may accept backlogging during the
shortage period, while the others would not. Hence only a fraction of demand occurring at a given time is backordered. The
fraction, moreover, is a decreasing function of the amount of demand already backlogged and the waiting time. The more the
amount of demand backlogged, the smaller the demand to accept backlogging would be. Meanwhile, the willingness of a
0307-904X/$ - see front matter 2012 Elsevier Inc. All rights reserved.
doi:10.1016/j.apm.2011.12.039

Corresponding author at: School of Economics and Management, Tongji University, Shanghai 200092, PR China. Tel.: +86 21 65982807.
E-mail address: yrduan@163.com (Y. Duan).
Applied Mathematical Modelling 36 (2012) 50155028
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j our nal homepage: www. el sevi er . com/ l ocat e/ apm
customer to wait for backlogging during a shortage period is declined with the length of the waiting time. Hence, partial
backlogging is more realistic in practice.
On the other hand, if the demand is dependent on the inventory level, an increase in shelf space for an item can induce
more consumers to buy it. This occurs because of its visibility, popularity or variety. Conversely, low stocks of certain goods
(e.g., food) might raise the perception that they are not fresh. Therefore, building up inventory often has a positive impact on
the sales, as well as the prot.
In this paper, the two factors will be considered simultaneously.
In the past decades, some researches had been done on backlog. In [8], Padmanabhan and Vrat presented inventory mod-
els for deteriorating items with stock dependent selling rate and derived the prot functions without backlogging, with com-
plete backlogging, and partial backlogging. In [9], the necessary and sufcient conditions for the existence and uniqueness of
the optimal solutions of the average prot functions for the case of without backlogging and with complete backlogging of
model in [8] is developed. In the case of partial backlogging, Padmanabhan and Vrats model assumed the backlogging func-
tion to be dependent on the amount of demand backlogged, but the uniqueness of the optimal solution remained further to
unexplored. As to the case of waiting time dependent partial backlogging rate, several distinct backlogging rates related to
the length of the waiting time is proposed in [10]. Chang and Dye in [11] developed an inventory model with time varying
demand rate, where backlogging rate is the reciprocal of a linear function of the waiting time. In [12], Dye and Ouyang estab-
lished necessary and sufcient conditions for the existence of the unique optimal solution to the problem.
All of above research are based on the assumption that building inventory is not protable in any case, and did not con-
sider the problem of whether building inventory is protable. As stated above, it is possible that holding inventory in the end
is more protable if the demand is inventory level dependent. In this regard, an appropriate model by assuming that building
up inventory is protable is established in [13], where they assumed that the remaining at the end of the inventory period
can be sold like the complete fresh goods in the next cycle. But this assumption is not common in practice especially for per-
ishable products, which will deteriorate gradually as time goes. In real life, disposing of the remaining is much more selected.
In this paper, the optimal inventory control for perishable item with inventory level dependent demand rate is investi-
gated. If the inventory is nonnegative, demand is dependent on the inventory level. If shortage occurs, demand is partially
backlogged, where the backlog rate is dependent on the amount of demand already backlogged and the length of waiting
time simultaneously.
Firstly, the conditions for holding inventory or backlogging is more protable are established. Secondly, models with
backlogging are established, and necessary and sufcient conditions for the existence of unique optimal solution are ob-
tained. The models in this paper are generalization of Padmanabhan and Vrats and Dye and Ouyangs models, where they
consider only one of the two factors. In particularly, our model is reduced to Padmanabhan and Vrats model if d
1
= 0, and
Dye and Ouyangs model if d
2
= 0. The optimal non-shortage period, shortage period and ordering quantity are obtained
for each case. For the case of without shortage, we consider a more general case when the remaining at the end of the replen-
ishment cycle will be disposed of with unit salvage value denoted by s. The necessary and sufcient condition for the exis-
tence of optimal solution is also obtained. The model is a generalization of the present one. In particular, if S = s and d
2
= 0, it
is Chang, Goyal and Tengs model. At last, the numerical examples are presented.
This paper is organized as follows. In Section 2, the assumptions and notations are introduced. In Section 3, models in
each case are established and the existence of optimal solution is analyzed. In Section 4, some numerical examples are pre-
sented to illustrate the effectiveness of our models. The summary and concluding remark are presented in the last section.
2. Assumptions and notations
The assumptions and notations underlying the models in this paper are:
(i) replenishment rate is innite and lead time is zero;
(ii) the unit cost C, the inventory carrying cost h per unit per unit time, the selling price S per unit, the ordering cost A per
order, the shortage cost C
2
per unit per unit time, the unite opportunity cost of lost sales R, the deterioration rate
0 6 h 6 1 are known and constant;
(iii) t
1
is the length of time interval with positive or zero inventory in a replenishment cycle, t
2
is the length of time interval
with negative inventory (or shortages) in a cycle, T = t
1
+ t
2
is the duration of a replenishment cycle;
(iv) the demand rate function D(t) is deterministic and
Dt
a bIt; 0 6 t 6 t
1
; It P0;
ad
2
It
1d
1
Tt
; t
1
< t 6 T; It < 0;
_
1
where a, b, d
1
, d
2
are positive constants. If I(t) P0, D(t) is a linear function of instantaneous stock level I(t). If shortage occurs
(I(t) < 0), unsatised demand is backlogged partially. Here the partial backlog rate is determined simultaneously by the
amount of demand already backlogged and the length of waiting time. If d
1
= d
2
= 0, unsatised demand is completely back-
logged. If d
1
> 0 or d
2
> 0, unsatised demand is partially backlogged, and the larger d
1
and d
2
, the smaller the partial back-
logging rate is.
5016 Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028
3. Model formulation
In this section, the models with and without backlogging are presented. The conditions under which shortage or holding
inventory is protable are obtained. In Section 3.1, models with backlogging are established. The necessary and sufcient
conditions for the existence of optimal solution are obtained. In Section 3.2, models without shortage are established, and
the existence of optimal solutions is also examined.
3.1. Models with backlogging
By the assumption in the previous section, in this case the depletion of the inventory occurs due to the combined effects
of the demand and deterioration in the interval (0, t
1
], and the demand backlogged in the interval (t
1
, T]. Hence, the instan-
taneous inventory level satises the following differential equation:
dIt
dt

a bIt; 0 6 t 6 t
1
;
ad
2
It
1d
1
Tt
; t
1
< t 6 T:
_
2
From (2), if 0 6 t 6 t
1
, then
dIt
dt
a bIt:
By I(t
1
) = 0, we have
It
ae
bht
1
t
1
b h
: 3
If t
1
< t 6 T, then
dIt
dt

a d
2
It
1 d
1
T t
;
so
It
a
d
2
1
1 d
1
T t
1 d
1
T t
1

_ _
d
2
d
1
_
_
_
_
_
_
: 4
By (3) and (4), the solution of (2) is as follows:
It
ae
bht
1
t
1
bh
; 0 6 t 6 t
1
;

a
d
2
1
1d
1
Tt
1d
1
Tt
1

_ _
d
2
d
1
_ _
; t
1
< t 6 T:
_

_
5
The total cost per cycle is comprised of the following parts:
(i) Ordering cost A;
(ii) Holding cost
h
_
t
1
0
Itdt h
_
t
1
0
ae
bht
1
t
1
b h
dt
ha
b h
2
1 e
bht
1

ha
b h
t
1
:
(iii) Shortage cost
C
2
_
T
t
1
Itdt C
2
_
T
t
1
a
d
2
1
1 d
1
T t
1 d
1
T t
1

_ _
d
2
d
1
_
_
_
_
_
_
dt

C
2
a
d
2
T t
1

C
2
a
d
2
d
1
d
2

1 d
1
T t
1

d
2
d
1

C
2
a
d
2
d
1
d
2

1 d
1
T t
1
:
(iv) Opportunity Cost
R
_
T
t
1
a
a d
2
It
1 d
1
T t
_ _
dt aRT t
1

Ra
d
2
1 d
1
T t
1

d
2
d
1

Ra
d
2
:
(v) Purchase cost
CI0 IT
aCe
bht
1
1
b h

aC
d
2
1
1
1 d
1
T t
1

_ _
d
2
d
1
_
_
_
_
_
_
:
Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028 5017
Furthermore, the sales revenue
S
_
T
0
Dtdt S
_
t
1
0
a bItdt
_
T
t
1
a d
2
It
1 d
1
T t
dt
Sat
1

Sba
b h
2
1 e
bht
1

Sba
b h
t
1

Sa
d
2
1 d
1
T t
1

d
2
d
1

Sa
d
2
:
Hence the average prot is:
Pt
1
; T
1
T
fsales revenue ordering cost holding cost shortage cost opportunity cost
purchasing costg

abS h b hC
b h
2
T
e
bht
1
1 b ht
1

aS Ct
1
T

aS C
d
2
T
f1 1 d
1
T t
1

d
2
d
1
g

aC
2
Rd
1
d
2

d
1
d
2
d
2
T
d
2
T t
1
1 d
1
T t
1

d
2
d
1
1
_ _

A
T
6
and
@Pt
1
; T
@t
1

abS h b hC
b hT
e
bht
1
1
aC
2
R S Cd
1
d
2

d
1
d
2
T
1 1 d
1
T t
1

d
2
d
1
1
_ _
; 7
@Pt
1
; T
@T

abS h b hC
b h
2
T
2
e
bht
1
1 b ht
1

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
T
2
Td
2
1 d
1
T t
1

d
2
d
1
1
1 d
1
T t
1

d
2
d
1
d
2
t
1
1
_ _

A
T
2
: 8
By (7) and (8), the rst-order necessary condition for the existence of optimum are (9) and (10):
abS h b hC
b h
e
bht
1
1
aC
2
R S Cd
1
d
2

d
1
d
2

1 1 d
1
T t
1

d
2
d
1
1
_ _
0; 9

abS h b hC
b h
2
e
bht
1
1 b ht
1

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
Td
2
1 d
1
T t
1

d
2
d
1
1
_
1 d
1
T t
1

d
2
d
1
d
2
t
1
1
_
A 0: 10
Remark 1. By (7), if bS h (b + h)C P0, then
@Pt
1
;T
@t
1
> 0; Pt
1
; T is increased in t
1
, holding inventory is protable. If
bS h (b + h)C < 0, there may exists t

1
; T

_ _
satises (10) and (11) simultaneously. In the following, we will conclude that
under certain condition t

1
< T

holds, and partial backlogging is protable. In fact, bS h (b + h)C = b(S C) (h + Ch),

wherein b(S C) is the benet from a unit of inventory on hand, h + hC is the cost due to that unit of inventory. If
bS h (b + h)C < 0, the benet is less than the cost, backlog is protable. If bS h (b + h)C P0, the benet outweighs cost,
building inventory is protable.
In the following, we will discuss the two cases respectively.
3.1.1. Model when bS h (b + h)C < 0
Theorem 1. If bS h (b + h)C < 0, the prot from holding inventory is less than the cost of inventory. Furthermore, if
A <
C
2
d
1
d
2
R S C
_ _
1
d
2

1
b h
a
C
2
d
1
d
2
R S
bS h
b h
_ _

t
1
_ _
; 11
where
^
t
1

1
bh
ln 1
bhC
2
d
1
d
2
RSC
d
1
d
2
bShbhC
_ _
, then
(i) there exists unique t

1
; T

_ _
satises (9) and (10) simultaneously;
(ii) t

1
; T

_ _
is the unique maximum of P(t
1
, T), and t

2
T

1
> 0;
(iii) the optimal ordering quantity is
Q

a e
bht

1
1
_
b h

a
d
2
1
1
1 d
1
T

_ _
d
1
d
2
_
_
_
_
_
_
: 12
5018 Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028
Proof.
(i) For simplicity, set t
2
= T t
1
. Substituting T = t
1
+ t
2
into (9) and (10), we have
bS h b hC
b h
e
bht
1
1
C
2
R S Cd
1
d
2

d
1
d
2

1 1 d
1
t
2

d
2
d
1
1
_ _
0 13
and

abS h b hC
b h
2
e
bht
1
1 b ht
1

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
t
1
t
2
d
2
1 d
1
t
2

d
2
d
1
1
1 d
1
t
2

d
2
d
1
d
2
t
1
1
_ _
A 0: 14
Set
Ft
1
; t
2

bS h b hC
b h
e
bht
1
1
C
2
R S Cd
1
d
2

d
1
d
2

1 1 d
1
t
2

d
2
d
1
1
_ _
: 15
The rst derivative of F(t
1
, t
2
) with respect to t
2
is
@Ft
1
; t
2

@t
2
C
2
R S Cd
1
d
2
1 d
1
t
2

d
2
d
1
2
> 0:
Hence, F(t
1
, t
2
) is a strictly increasing function of t
2
2 [0, 1). Since bS h (b + h)C < 0, by (15) we have lim
t
2
!0
Ft
1
; t
2
< 0:
Further, it can be shown that if t
1
<
^
t
1
,
lim
t
2
!1
Ft
1
; t
2

bS h b hC
b h
e
bht
1
1
C
2
R S Cd
1
d
2

d
1
d
2

> 0:
Therefore, if t
1
<
^
t
1
, there exists a unique t

2
satises (13), and
t

2

1
d
1
1
bS h b hCe
bht
1
1
b h
C
2
RSCd
1
d
2

d
1
d
2

_ _
_
_
_
_

d
1
d
1
d
2
1
_

_
_

_
: 16
It is easy to verify that if t
1
<
^
t
1
; t

2
> 0.
From (16), once t

1
is obtained, t

2
can be uniquely determined, and T

1
t

2
can be determined accordingly.
Set
Gt
1
; t
2

abS h b hC
b h
2
e
bht
1
1 b ht
1

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
t
1
t
2
d
2
1 d
1
t
2

d
2
d
1
1
1 d
1
t
2

d
2
d
1
d
2
t
1
1
_ _
A: 17
Substituting (16) into (17), G(t
1
, t
2
) is a univariate function of t
1
. For simplicity, we denote it by G(t
1
), then
dGt
1

dt
1

abS h b hC
b h
2
b he
bht
1
b h
aC
2
R S Cd
1
d
2

d
1
d
2
d
2
d
2
1
dt

2
dt
1
_ _
1 d
1
t
2

d
2
d
1
1
t
1
t

2
_ _
d
1
d
2

d
1
1 d
1
t

2
_ _

d
2
d
1
2
d
1
dt

2
dt
1
_ _

d
2
d
1
1 d
1
t
2

d
2
d
1
1
d
1
dt

2
dt
1
d
2
_ _

abS h b hC
b h
e
bht
1
1
aC
2
R S Cd
1
d
2

d
1
d
2

1 d
1
t

2
_ _

d
2
d
1
1
t
1
t

2
_ _
d
1
d
2
1 d
1
t

2
_ _

d
2
d
1
2 dt

2
dt
1
_ _
1
_ _
18
From (13), we have
bS h b hC
b h
e
bht
1
1
C
2
R S Cd
1
d
2

d
1
d
2

1 1 d
1
t
2

d
2
d
1
1
_ _
: 19
Substituting (19) into (18), we get
dGt
1

dt
1
aC
2
R S Cd
1
d
2
t
1
t

2
_ _
1 d
1
t

2
_ _
d
2
d
1
2
_ _
dt

2
dt
1
20
Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028 5019
By bS h (b + h)C < 0 and t

2
> 0, we have
dt

2
dt
1

1
d
1
d
2
1
bS h b hCe
bht
1
1
b h
C
2
RSCd
1
d
2

d
1
d
2

_ _

d
1
d
1
d
2
1
_
_
_
_
_
_
bS h b hCe
bht
1
C
2
RSCd
1
d
2

d
1
d
2

> 0: 21
Hence,
dGt
1

dt
1
< 0: 22
G(t
1
) is strictly decreasing in t
1
.
Since lim
t
1
!
^
t
1
t
2
1;
lim
t
1
!
^
t
1
Gt
1
a
C
2
d
1
d
2
R S C
_ _
1
d
2

1
b h
_ _
a
C
2
d
1
d
2
R S
bS h
b h
_ _
^
t
1
A: 23
By (23), if (11) holds
lim
t
1
!
^
t
1
Gt
1
< 0: 24
In addition, if t
1
= 0, by (16) t

2
0 0. By (17), G(0) = A > 0. By (24) and (22), there exists unique t

1
; t

2
_ _
; t

1
2 0;
^
t
1
and
t

2
2 0; 1 such that Gt

1
; t

2
0. Hence, there exists unique t

1
; T

_ _
satises (10) and (11) simultaneously.
(ii) Next, we examine the second order sufcient conditions for the existence of maximum of P(t
1
, T).
Let H denote the Hessian Matrix of P(t
1
, T). Since
@
2
Pt
1
; T
@t
2
1
j
t
1
;T t

1
;T

abS h b hC
T

e
bht

1
< 0;
@
2
Pt
1
; T
@T
2
j
t
1
;T t

1
;T

aC
2
R S Cd
1
d
2

1 d
1
T

1
_ _ _

d
1
d
2
2
< 0
and
@
2
Pt
1
; T
@t
1
@T
j
t
1
;T t

1
;T

aC
2
R S Cd
1
d
2

1 d
1
T

1
_ _ _

d
1
d
2
2
;
we have
jHj
t
1
;T t

1
;T

> 0:
H is negative denite when t
1
; T t

1
; T

_ _
; so t

1
; T

_ _
is the unique maximum of P(t
1
, T).
(iii) Once t

1
; T

_ _
is obtained, the initial inventory I0
ae
bht
1 1
bh
and the total backlogged demand
IT

a
d
2
1
1
1d
1
T

1

_ _
d
2
d
1
_
_
_
_
_
_
can be determined accordingly. The optimal ordering quantity Q

can be obtained, and

Q

I0 IT
ae
bht
1
1
b h

a
d
2
1
1
1 d
1
T

1
_ _
_ _
d
2
d
1
_ _
: 25
The proof of Theorem 1 is complete. h
Remark 2. If bS h (b + h)C < 0, the prot from holding inventory is less than the cost of inventory. Further, by
dt

2
dt
1
> 0 the
longer the retailer holds inventory, the longer the shortage period is. By the proof of Theorem 1, if
A P
C
2
d
1
d
2
R S C
_ _
1
d
2

1
bh
a
C
2
d
1
d
2
R S
bSh
bh
_ _
^
t
1
_ _
; Gt
1

@Pt
1
;T
@T
j
Tt
1
t

2
P0; Pt
1
; T is increasing in T. In this
case, the seller will reduce the ordering frequency by prolonging the replenishment cycle.
3.1.2. Model when bS h (b + h)C P0
As stated above, if bS h (b + h)C P0, building inventory is protable for the seller. But as stated in Chang, Goyal and
Teng (2009), most retail outlets have limited shelf space, and too much piled up in everyones way leaves a negative impres-
sion on buyer and employee alike. Meanwhile, for perishable product, the overfull inventory will increase the holding cost
and deteriorating cost greatly. Here we assume the shelf space for this product is U units, i.e. I(0) = U. In this case, even
though building inventory is protable, shortage may also occur. In this section, conditions under which backlogging will
occur or not are obtained. The minimum U

which ensures no shortage occurs is also obtained.

For simplicity, substituting T = t
1
+ t
2
into (6), we have
5020 Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028
Pt
1
; t
2

abS h b hC
b h
2
t
1
t
2

e
bht
1
1 b ht
1

aS Ct
1
t
1
t
2

aS C
d
2
t
1
t
2

1 1 d
1
t
2

d
2
d
1
_ _

aC
2
Rd
1
d
2

d
1
d
2
d
2
t
1
t
2

d
2
t
2
1 d
1
t
2

d
2
d
1
1
_ _

A
t
1
t
2

: 26
Theorem 2. If bS h (b + h)C P0, the benet from a unit of inventory outweighs the cost. In this case, t

1

1
bh
ln
aUbh
a
_ _
:
Further more,
(i) if
A 6
abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _
; 27
the optimal length of shortage period t

2
0; and backlog will never occur;
(ii) if
A >
abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _
28
and
A <
abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
d
2
b h
ln 1
Ub h
a
_ _
1
_ _
; 29
the optimal length of shortage period t

2
> 0;
(iii) if
A P
abS h b hC
b h
2
Ub h
a
ln1
Ub h
a

_ _

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
d
2
b h
ln 1
Ub h
a
_ _
1
_ _
; 30
then P t

1
; t
2
_ _
is strictly increasing in t
2
.
Proof. By I(0) = U and (3), we have
t

1

1
b h
ln 1
Ub h
a
_ _
: 31
Substitute (31) into (26), P t

1
; t
2
_ _
is a univariate function of t
2
, and
dP t

1
; t
2
_ _
dt
2

abS h b hC
b h
2
t

1
t
2
_ _
2
e
bht

1
1 b ht

1
_

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
t

1
t
2
_ _
2
t

1
t
2
_ _
d
2
1 d
1
t
2

d
2
d
1
1
1 d
1
t
2

d
2
d
1
d
2
t

1
1
_ _

A
t

1
t
2
_ _
2
:
The rst order necessary condition for the existence of the maximum is,

abS h b hC
b h
2
e
bht

1
1 b ht

1
_

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
t

1
t
2
_ _
d
2
1 d
1
t
2

d
2
d
1
1
1 d
1
t
2

d
2
d
1
d
2
t

1
1
_ _
A 0: 32
To examine whether (32) has unique solution, set
Gt
2

abS h b hC
b h
2
e
bht

1
1 b ht

1
_

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
t

1
t
2
_ _
d
2
1 d
1
t
2

d
2
d
1
1
1 d
1
t
2

d
2
d
1
d
2
t

1
1
_ _
A: 33
Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028 5021
Since
G
0
t
2
aC
2
R S Cd
1
d
2
t

1
t
2
_ _
1 d
1
t
2

d
2
d
1
2
< 0
and
G0
abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _
A;
if (27) holds, then G(t
2
) < 0 for all t
2
> 0. Pt

1
; t
2
is strictly decreasing in t
2
; t

2
0 is the maximum of P t

1
; t
2
_ _
:
(ii) If (28) holds, G(0) > 0. By (33),
lim
t
2
!1
Gt
2

abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
d
2
b h
ln 1
Ub h
a
_ _
1
_ _
A:
Since G(t
2
) is strictly decreasing in t
2
, (33) has a unique solution t

2
> 0 if (29) holds. Further, by
dP t

1
;t
2
dt
2
j
t
2
t

2
0 and
d
2
P t

1
; t
2
_ _
dt
2
2
j
t
2
t

2

abS h b hC
t

1
t

2
1 d
1
t

2
_

d
2
d
1
2
< 0;
t

1
; t

2
_ _
is the unique maximum of P(t
1
, t
2
) in (26).
(iii) If (30) holds, G(t
2
) > 0 all t
2
P0. Hence, P t

1
; t
2
_ _
is strictly increasing in t
2
.
The proof of Theorem 2 is complete. h
Remark 3. Theorem 2 reveals that the larger the ordering cost, the longer he shortage interval. If the ordering cost A is very
large, since t

1

1
bh
ln 1
Ubh
a
_ _
; the seller has to reduce the ordering frequency and costs by extending the shortage per-
iod. If the ordering cost is small, the seller can order frequently, and satisfy all demand immediately. In this case, backlog will
never occur. If the ordering cost is moderate, an appropriate backlogging will benet the seller, and the length of shortage
period is equal to t

2
:
From Theorem 2, we have the following results.
Corollary 1. If bS h (b + h)C P0, then there exists U

1
and U

2
such that
(i) if U PU

1
, backlog will never occur. The smallest shelf space to ensure backlog not occur is U

1
;
(ii) if max 0; U

2
_ _
< U < U

1
, the optimal length of shortage period t

2
> 0;
(iii) if 0 6 U 6 max 0; U

2
_ _
; then P t

1
; t
2
_ _
is strictly increasing in t
2
.
Proof.
(i) Set
HU
abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _
A;
then
dHU
dU

bh
a

bh
a
1
Ubh
a
> 0:HU is strictly increasing in U. Let U

1
be the unique solution to H(U) = 0, then by the monotonic-
ity of H(U), H(U) P0 for U PU

1
: By Theorem 2, t

2
0; backlog will not occur.
(ii) Let
JU
abS h b hC
b h
2
Ub h
a
ln 1
Ub h
a
_ _ _ _

aC
2
R S Cd
1
d
2

d
1
d
2
d
2
d
2
b h
ln 1
Ub h
a
_ _
1
_ _
A;
then
dJU
dU

abS h b hC
b h
2
b h
a

bh
a
1
Ubh
a
_ _

aC
2
R S Cd
1
d
2

d
1
d
2
1
Ubh
a
_ _ > 0:
5022 Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028
J(U) is also a strictly increasing function of U. Let U

2
denote the unique solution to J(U) = 0, then by the monotonicity of J(U),
J(U) > 0 for U > U

2
: Hence, if max 0; U

2
_ _
< U < U

1
, the optimal length of shortage period t

2
> 0;
(iii) if 0 6 U 6 max 0; U

2
_ _
, then J(U) 6 0, by (iii) in Theorem 2, P t

1
; t
2
_ _
is strictly increasing in t
2
. h
Remark 4. If the shelf space is not very large, although the benet from inventory outweighs the cost, an appropriate short-
age will benet the seller. If the shelf space is very small, the seller can increase prot by prolong the shortage period, but it
will bring about other problem. Service quality may decrease accordingly.
3.2. Model without backlogging
In this section, backlog is not permitted. The remaining inventory in the end of the ordering cycle will be disposed of
with salvage value s per unit. In this case, the inventory level I(t) at time t satises the following differential equation:
dIt
dt
a bIt hIt; 0 6 t 6 T; IT E; 34
so
It Ee
bhTt

a
b h
e
bhTt
1; 0 6 t 6 T 35
The prot function per cycle consists of the following terms:
(i) Ordering cost per cycle = A;
(ii) Carrying cost h
_
T
0
Itdt h
1
bh
E
a
bh
_ _
e
bhT
1
aT
bh
_ _
(iii) Purchase cost CI0 C Ee
bhT

a
bh
e
bhT
1
_ _
(iv) Sales revenue S
_
T
0
Dtdt aSt
1
bS
1
bh
E
a
bh
_ _
e
bhT
1
aT
bh
_ _
(v) Salvage value at the end of the cycle sI(T) = sE.
Consequently, the average prot function is
PT; E
1
T
sales revenue salvage value ordering cost carrying cost purchase cost
S Ca
a
b h
bS h b hC
bS h b hC
b hT
E
a
b h
_ _
e
bhT
1
A C sE
T
: 36
By I(0) = U and (36), we have
T

1
b h
ln
a Ub h
a Eb h
_ _
: 37
Substitute (38) into (37), P(T, E) is a unique function of E, denoted by P(E). The rst order necessary condition for the exis-
tence of maximum E

of P(E) is as follows:
dPE
dE

b h
2
a Eb h ln
aUbh
aEbh
_ _
2
bS h b hCU E
b h
A EC s
_ _

b h
ln
aUbh
aEbh
bS h b hC
b h
C s
_ _
0: 38
By simplifying terms, we get
bS h b hCU E
b h

a Eb h
b h
ln
a Ub h
a Eb h
_ _
bS h b hC
b h
C s
_ _
A EC s 0: 39
To examine whether (40) has a unique solution, set
F
1
E
bS h b hCU E
b h

a Eb h
b h
ln
a Ub h
a Eb h
_ _
bS h b hC
b h
C s
_ _
A EC s; 40
Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028 5023
then
F
0
1
E
bS h b hC
b h
C s
_ _
ln
a Ub h
a Eb h
_ _
< 0: 41
F
1
(E) is a strictly decreasing function of E. In addition,
F
1
U A EC s < 0;
F
1
0
bS h b hCU
b h

a
b h
ln
a Ub h
a
_ _
bS h b hC
b h
C s
_ _
A:
Consequently, we have the following theorem.
Theorem 3. If bS h (b + h)C P0, then
(i) if
bS h b hCU
b h
>
a
b h
ln
a Ub h
a
_ _
bS h b hC
b h
C s
_ _
A; 42
there exists a unique 0 < E

< U which maximize P(E), and the optimal ordering cycle T

1
bh
ln
aUbh
aE

bh
_ _
;
(ii) if
bS h b hCU
b h
6
a
b h
ln
a Ub h
a
_ _
bS h b hC
b h
C s
_ _
A; 43
then E

= 0, and the optimal ordering cycle T

1
bh
ln 1
bhU
a
_ _
:
Proof.
(i) Since P(E) is a continuous function of E on [0, U], the maximum exists. From (36) and (37), if (42) holds, F
1
(0) > 0. Con-
sequently, there exists unique 0 < E

< U such that F(E

) = 0.
Furthermore, by bS h (b + h)C P0,
d
2
PE
dE
2
j
EE

1
a E

b ht

1
fbS h b hC b hC sg < 0;
E

is the unique maximum of P(E).

(ii) If (43) holds, F
1
(0) 6 0. By the monotonicity of F
1
(E), F
1
(E) < 0 for all E > 0.P(E) is strictly decreasing in E, so P(E) is max-
imized when E

= 0.
The proof of Theorem 3 is complete. h
By Theorem 3, we have the following result.
Corollary 2. If bS h (b + h)C P0, then there exists U

31
and U

32
such that
(i) if 0 6 U < max 0; U

31
_ _
or U > U

32
; then E

> 0;
(ii) if max 0; U

31
_ _
6 U 6 U

32
, then E

= 0.
Proof. Set
LU
bS h b hCU
b h

a
b h
ln
a Ub h
a
_ _
bS h b hC
b h
C s
_ _
A;
then
d
2
LU
dU
2

bh
a
1
Ubh
a
_ _
2
bS h b hC
b h
C s
_ _
> 0:
L(U) is a strictly convex function. Let U

31
and U

32
be solutions of L(U) = 0, then by the convexity of L(U), L(U) > 0 if
0 6 U < max 0; U

31
_ _
or U > U

32
: By Theorem 3 (i), E

> 0. If max 0; U

31
_ _
6 U 6 U

32
, by Theorem 3 (ii), E

= 0. The inventory
is used up before disposing. h
5024 Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028
4. Numerical Example
In this section, we will present some numerical examples for every case.
4.1. bS h (b + h)C < 0
By the results in Section 3, if other parameters are the same, then if the selling price S < S
hbhC
b
, holding inventory is
not protable. Set a = 600, b = 0.3, h = 0.05, A = 250, C = 5, C
2
= 3, R = 5, h = 1.75, then S 11:67. Tables 1 and 2 illustrate the
results when S = 7 and S = 10, respectively.
As shown in Tables 1 and 2, if d
1
or d
2
is increasing, the length of shortage period (t
2
) and ordering cycle (T) will decrease,
but the length of time interval with nonnegative inventory (t
1
) will increase. As a result, the proportion of time interval with
nonnegative inventory in an ordering cycle
t1
T
_ _
will increase. The optimal prot and ordering quantity are also decreasing in
d
1
and d
2
. In fact, as d
1
or d
2
increases, the proportion of customer who would like to wait will decrease. In this case, the seller
has to reduce the lost sale by increasing the length of inventory period and reducing the shortage period. Due to the dete-
rioration, the seller will increase the ordering frequency and shorten the ordering cycle. From the computing results, optimal
order quantity, ordering cycle and prot are more sensitive to d
1
and d
2
when they are small. As d
1
or d
2
increasing, the length
of shortage period or waiting time will be very short. In this case, few people are willing to accept the back order, so the
sellers have to compensate by shortening the length of shortage period.
By comparing the results in Tables 1 and 2, we can see that if other costs are the same, the optimal order quantity, order-
ing cycle, shortage period and prot are more sensitive to d
1
and d
2
when the selling price is lower. So if the sellers net prot
is high, partial backlog will not have great effect on the prot. But if the net prot is low, the seller should try to reduce the
inuence of back order on the demand.
Table 3 gives the results when h changing, where a = 600, b = 0.3, A = 250, C = 5, C
2
= 3, R = 5, h = 1.75, S = 10. As h increas-
ing, t
1
and T decrease, but t
2
increases. In fact, as h increasing, the loss from deterioration increases. The seller has to decrease
the cost by shortening T and t
1
, and extending the shortage period. Meanwhile, as h increasing, the optimal ordering quantity
and prot will decrease.
Table 1
The results when d
1
or d
2
changing and S = 7.
d
1
d
2
t
1
t
2
T
t1
T
Q P
0 0 0.9071 0.421 1.3281 0.683 893.17 601.56
0 1 0.6633 0.1104 0.7737 0.8573 510.68 572.87
0 5 0.6962 0.0314 0.7276 0.9568 490.45 537.77
0 10 0.7025 0.0166 0.7191 0.9769 487.02 531.01
0 25 0.7067 0.0069 0.7136 0.9903 484.87 526.54
0 50 0.7081 0.0035 0.7116 0.9951 484.07 524.98
1 0 0.6617 0.1164 0.7781 0.8504 512.82 574.5
1 1 0.6803 0.07 0.7503 0.9067 500.13 554.76
1 5 0.6981 0.027 0.7251 0.9628 489.43 535.71
1 10 0.7031 0.0153 0.7184 0.9787 486.75 530.39
1 25 0.7068 0.0066 0.7134 0.9907 484.78 526.43
1 50 0.7082 0.0034 0.7116 0.9952 484.09 524.95
5 0 0.6955 0.0339 0.7294 0.9535 491.26 538.51
5 1 0.6977 0.0285 0.7262 0.9608 489.95 536.14
5 5 0.7023 0.0173 0.7196 0.976 487.24 531.22
5 10 0.7047 0.0116 0.7163 0.9838 485.93 528.66
5 25 0.7071 0.0058 0.7129 0.9919 484.57 526.05
5 50 0.7083 0.0032 0.7115 0.9955 484.06 524.84
10 0 0.7021 0.018 0.7201 0.975 487.46 531.43
10 1 0.7028 0.0163 0.7191 0.9773 487.06 530.71
10 5 0.7046 0.0119 0.7165 0.9834 486.01 528.76
10 10 0.7059 0.0089 0.7148 0.9875 485.35 527.42
10 25 0.7075 0.0051 0.7126 0.9928 484.49 525.69
10 50 0.7084 0.0029 0.7113 0.9959 483.97 524.73
25 0 0.7065 0.0075 0.714 0.9895 485.04 526.73
25 1 0.7006 0.0072 0.7078 0.9898 480.34 526.57
25 5 0.707 0.0062 0.7132 0.9913 484.7 526.15
25 10 0.7074 0.0053 0.7127 0.9926 484.52 525.75
25 25 0.7081 0.0036 0.7117 0.9949 484.12 525.02
25 50 0.7086 0.0024 0.711 0.9966 483.84 524.47
50 0 0.708 0.0038 0.7118 0.9947 484.15 525.07
50 1 0.7081 0.0037 0.7118 0.9948 484.17 525.04
50 5 0.7082 0.0034 0.7116 0.9952 484.09 524.91
50 10 0.7083 0.0031 0.7114 0.9956 484 524.78
50 25 0.7086 0.0025 0.7111 0.9965 483.9 524.49
50 50 0.7088 0.0018 0.7106 0.9975 483.67 524.2
Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028 5025
4.2. bS h (b + h)C P0
Set a = 600, b = 0.3, A = 250, h = 0.05, C = 5, h = 1.75, C
2
= 3, R = 5, d
1
= 5, d
2
= 1, then if S P11.67, holding inventory is prof-
itable. Table 3 gives the results when S = 12. Using fzero function in Matlab, we obtain U

1
2358:4 and U

2
493:5142. By
Corollary 1, if U > U

1
2358:4, backlogging never occurs. It is consistent with the results in Table 4.
By the results in Table 4, we can see that when holding inventory is protable, the prot is increased with the shelf space
U. It is partly because we did not consider the cost of shelf space. In practice, the optimal shelf space is commonly deter-
mined by factors such as the usable shelf space, costs and other items shelf space.
By Corollary 1, if U PU

1
, the length of shortage period is equal to zero, shortage will never occur. In model 3, if U < U

3
,
then E = 0. So, if we set C
2
= R = 0 in model 2, then if U

1
6 U < U

3
U

3
_
is independent of the value of C
2
and R), the prot and
the ordering quantity are the same. Table 5 gives the results when the shortage cost is zero, the computing results is con-
sistent with the analysis. If U < U

1
, the prot is almost the same for given initial shelf space, especially when U P300. In fact,
if holding inventory is protable, the optimal shortage period will very short in model 2. The results of model 2 and model 3
will have little difference. This can also be observed by comparing the results in Tables 4 and 5, the prot is almost the same
when C
2
= 3, R = 5 and C
2
= R = 0.
Table 2
The results when d
1
or d
2
changing and S = 10.
d
1
d
2
t
1
t
2
T
t1
T
Q P
1 1 1.1167 0.0311 1.1478 0.972905 837.919 2590.107
1 5 1.1246 0.0114 1.136 0.989965 833.4504 2586.578
1 10 1.1266 0.0063 1.1329 0.994439 832.2699 2585.67
1 25 1.1281 0.0027 1.1308 0.997612 831.5176 2585.014
1 50 1.1587 0.0014 1.1601 0.998793 831.2981 2584.773
5 1 1.1245 0.0116 1.1361 0.98979 833.477 2586.609
5 5 1.1264 0.0071 1.1335 0.993736 832.5536 2585.793
5 10 1.1273 0.0047 1.132 0.995848 831.9644 2585.375
5 25 1.1283 0.0024 1.1307 0.997877 831.5207 2584.95
5 50 1.1287 0.0013 1.13 0.99885 831.2402 2584.755
10 1 1.1266 0.0065 1.1331 0.994264 832.3843 2585.692
10 5 1.1273 0.0048 1.1321 0.99576 832.0211 2585.382
10 10 1.1278 0.0036 1.1314 0.996818 831.7709 2585.167
10 25 1.1284 0.0021 1.1305 0.998142 831.4353 2584.89
10 50 1.1287 0.0012 1.1299 0.998938 831.1822 2584.736
25 1 1.1281 0.0028 1.1309 0.997524 831.5747 2585.025
25 5 1.1282 0.0024 1.1306 0.997877 831.4325 2584.957
25 10 1.1284 0.0021 1.1305 0.998142 831.4358 2584.894
25 25 1.1286 0.0015 1.1301 0.998673 831.2658 2584.781
25 50 1.1288 0.001 1.1298 0.999115 831.1547 2584.693
50 1 1.1286 0.0014 1.13 0.998761 831.2097 2584.779
50 5 1.1287 0.0013 1.13 0.99885 831.2407 2584.76
50 10 1.1287 0.0012 1.1299 0.998938 831.1826 2584.739
50 25 1.1288 0.001 1.1298 0.999115 831.1549 2584.695
50 50 1.1289 0.0007 1.1296 0.99938 831.0713 2584.65
Table 3
The results when h changing.
d
1
d
2
h t
1
t
2
T
t1
T
Q P
1 5 0 1.5546 0.0081 1.5627 0.994817 1193.169 2702.904
1 5 0.03 1.2503 0.0102 1.2605 0.991908 934.5536 2628.554
1 5 0.05 1.1246 0.0114 1.136 0.989965 833.4504 2586.578
1 5 0.06 1.0743 0.0119 1.0862 0.989044 793.8678 2567.158
1 5 0.08 0.9908 0.013 1.0038 0.987049 729.3701 2530.787
5 5 0 1.5558 0.005 1.5608 0.996797 1192.5 2702.611
5 5 0.03 1.2503 0.0063 1.2582 0.994993 933.7318 2627.984
5 5 0.05 1.1264 0.0071 1.1335 0.993736 832.5536 2585.793
5 5 0.06 1.0762 0.0074 1.0836 0.993171 792.9362 2566.257
5 5 0.08 0.9928 0.0081 1.0009 0.991907 728.2854 2529.639
10 5 0 1.5564 0.0034 1.5598 0.99782 1192.137 2702.458
10 5 0.03 1.2527 0.0043 1.257 0.996579 933.2925 2627.686
10 5 0.05 1.1273 0.0048 1.1321 0.99576 832.0211 2585.382
10 5 0.06 1.0771 0.005 1.0821 0.995379 792.3423 2565.784
10 5 0.08 0.9939 0.0055 0.9994 0.994497 727.7471 2529.036
5026 Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028
4.3. Model without backlogging
Set a = 600, b = 0.3, A = 250, h = 0.05, C = 5, h = 1.75, s = 4, S = 12, the result of model 3 is given in Table 6.
Table 4
The results of model 2 when U changing (C
2
= 3, R = 5).
U t
1
t
2
T
t1
T
Q P
10 0.0166 0.1362 0.1528 0.108639 69.19872 721.547
30 0.0496 0.0941 0.1437 0.345164 74.53302 1423.29
50 0.0821 0.068 0.1501 0.546969 84.11225 1978.86
100 0.162 0.0372 0.1992 0.813253 120.1251 2811.28
300 0.4608 0.0124 0.4732 0.973795 307.1752 3678.9
500 0.7312 0.0073 0.7385 0.990115 504.2866 3883.59
800 1.0943 0.0043 1.0986 0.996086 802.5472 4009.37
833.477 1.1321 0.0041 1.1362 0.996391 835.9072 4018.43
1000 1.3129 0.003 1.3159 0.99772 1001.784 4055.94
1500 1.796 0.0016 1.7976 0.99911 1500.955 4128.03
1700 1.9685 0.0012 1.9697 0.999391 1700.717 4148.33
1900 2.1311 0.00076 2.131859 0.999644 1900.455 4165.99
2100 2.285 0.00041 2.285407 0.999822 2100.246 4181.74
2300 2.431 8.8E-05 2.431088 0.999964 2300.053 4196.05
2358.4 2.4723 0 2.4723 1 2358.4 4200
2400 2.5013 0 2.5013 1 2400 4202.76
2600 2.637 0 2.637 1 2600 4215.48
2800 2.7664 0 2.7664 1 2800 4227.38
3000 2.8903 0 2.8903 1 3000 4238.64
Table 5
The results of model 2 when U changing (C
2
= 0, R = 0).
U t
1
t
2
T
t1
T
Q P
10 0.0166 0.2277 0.2443 0.067949 94.61782 1686.67
30 0.0496 0.1674 0.217 0.228571 98.71272 2024.81
50 0.0821 0.1261 0.2082 0.394332 105.8895 2335.5
100 0.162 0.0713 0.2333 0.694385 135.4957 2913.3
300 0.4608 0.0231 0.4839 0.952263 312.974 3684.45
500 0.7312 0.0134 0.7446 0.982004 507.7319 3884.86
800 1.0943 0.0079 1.1022 0.992833 804.6308 4009.67
833.477 1.1321 0.0075 1.1396 0.993419 837.8785 4018.69
1000 1.3129 0.0059 1.3188 0.995526 1003.479 4056.08
1500 1.796 0.0029 1.7989 0.998388 1504.725 4128.05
1700 1.9685 0.0021 1.9706 0.998934 1701.252 4148.34
1900 2.1311 0.0014 2.1325 0.999343 1900.836 4166
2100 2.285 0.00073 2.285727 0.999682 2100.437 4181.74
2300 2.431 0.00016 2.431157 0.999935 2300.096 4196.05
Table 6
The results of model 3 when U changing.
U T E Q P U T E Q P
10 0.016618 0 10 10843 2400 2.501339 0 2400 4202.76
30 0.049568 0 30 842.13 2600 2.636958 0 2600 4215.48
50 0.082141 0 50 1158.95 2800 2.76643 0 2800 4227.38
100 0.161987 0 100 2661.62 3000 2.890288 0 3000 4238.64
300 0.460766 0 300 3672.02 6000 4.297364 0 6000 4369.31
500 0.731238 0 500 3882.05 8000 4.956003 0 8000 4439.33
800 1.094264 0 800 4008.99 11000 5.724942 0 11000 4533.88
833.477 1.132055 0 833.477 4018.09 14000 6.330211 0 14000 4620.97
1000 1.31295 0 1000 4055.77 17000 6.829402 0 17000 4703.18
1500 1.796025 0 1500 4128 20000 7.254211 0 20000 4781.83
1700 1.968491 0 1700 4148.32 20709 7.34601 0 20709 4799.99
1900 2.131136 0 1900 4165.99 21000 7.3555 16.4826 21000 4807.42
2000 2.209114 0 2000 4174.07 23000 7.415 130.0815 23000 4858.54
2100 2.28502 0 2100 4181.74 25000 7.4662 243.9456 25000 4909.78
2300 2.431037 0 2300 4196.05 28000 7.5308 415.1208 28000 4986.8
2358.4 2.472303 0 2358.4 4200 30000 7.5675 529.434 30000 5038.25
Y. Duan et al. / Applied Mathematical Modelling 36 (2012) 50155028 5027
Using fzero function in Matlab, we obtain U

31
228:4881; U

32
20709. By Corollary 2, if U < U

32
20709, the remain-
ing inventory before disposing is zero. It is consistent with the results in Table 6. The prot is also increased in the self space
U here. It is also partly because we did not consider the xed cost of the shelf space here.
5. Conclusions
In this paper, inventory models for perishable products with inventory level dependent demand rate are presented. When
backlogging is permitted, we assume that the backlogging rate is dependent on both the waiting time and the demand al-
ready backlogged. Two cases that holding inventory is protable or not are studied. When shortage is not permitted, we as-
sume that the remaining inventory at the end of inventory can be disposed with salvage value s. The necessary and sufcient
conditions for the existence and uniqueness of the optimal inventory cycle, shortage period, ordering quantity and prot of
theses models are given. Meanwhile, the smallest initial inventory level (shelf space) to ensure the shortage not to occur is
obtained. Some examples are given to illustrate the effectiveness of the model and results. The sensitivity of the optimal
ordering cycle, shortage period, ordering quantity and prot to the parameters are also analyzed. As d
1
or d
2
increasing,
the length of shortage period (t
2
) and ordering cycle (T) will decrease, but the length of time interval having nonnegative
inventory (t
1
) will increase. Hence, the proportion of non-shortage period in an ordering cycle
t1
T
_ _
will increase. The optimal
prot and ordering quantity also decreases in d
1
and d
2
. Optimal order quantity, prot ordering cycle, and shortage period are
more sensitive to d
1
and d
2
when the selling price is low. As h increasing, t
1
and T decrease, but t
2
increases. The optimal shelf
space to ensure shortage not occur is obtained when shortage is permitted and holding inventory is protable. When short-
age is not permitted, the largest shelf space to unsure the residue equal to 0 is also obtained. By the results of model 2 and
model 3, if U

3
> U > U

1
(U

3
is independent of the value of C
2
and R, then the prot and the ordering quantity are the same,
which is consistent with our analysis). If holding inventory is protable, the optimal shortage period will very short in model
2. In this case, the results of model 2 and model 3 will have little difference. The models in this paper can be applied to deter-
mine optimal inventory policy in situations such as super market bakeries, stationery stores, and fancy items which may
exhibit the characteristics modeled here.
Acknowledgments
Research support to the authors by Supported by Innovation Program of Shanghai Municipal Education Commis-
sion(09ZS39) and the National Natural Science Foundation of China (71002020,70832005) is gratefully acknowledged.
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