International Journal of Systems Science

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A study on two-warehouse partially backlogged

deteriorating inventory models under inflation via
particle swarm optimisation

A.K. Bhunia, A.A. Shaikh & R.K. Gupta

To cite this article: A.K. Bhunia, A.A. Shaikh & R.K. Gupta (2015) A study on two-warehouse
partially backlogged deteriorating inventory models under inflation via particle swarm optimisation,
International Journal of Systems Science, 46:6, 1036-1050, DOI: 10.1080/00207721.2013.807385

To link to this article: https://doi.org/10.1080/00207721.2013.807385

Published online: 14 Jun 2013.

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International Journal of Systems Science, 2015
Vol. 46, No. 6, 1036–1050, http://dx.doi.org/10.1080/00207721.2013.807385

A study on two-warehouse partially backlogged deteriorating inventory models under inflation

via particle swarm optimisation
A.K. Bhuniaa , A.A. Shaikha,∗ and R.K. Guptab
a
Department of Mathematics, The University of Burdwan, Burdwan, West Bengal, India; b Department of Commerce and Management,
West Bengal State University, Barasat, Kolkata, West Bengal, India
(Received 19 October 2012; final version received 10 May 2013)

This paper deals with a deterministic inventory model for linear trend in demand under inflationary conditions with different
rates of deterioration in two separate warehouses (owned and rented warehouses). The replenishment rate is infinite. The stock
is transferred from the rented warehouse to owned warehouse in continuous release pattern and the associated transportation
cost is taken into account. At owned warehouse, shortages, if any, are allowed and partially backlogged with a rate dependent
on the duration of waiting time up to the arrival of the next lot. The corresponding problems have been formulated as nonlinear
constrained optimisation problems for two different policies (inventory follows shortage (IFS) and shortage follows inventory
(SFI)). Finally, the model has been illustrated with a numerical example and to study the effects of changes of different
system parameters on initial stock level, maximum shortage level and cycle length with the minimum cost of the system,
sensitivity analyses have been carried out by changing one parameter at a time and keeping the others at their original values.
Keywords: inventory; two-warehouse; deterioration; partial backlogging; inflation; time-dependent demand

1. Introduction material handling, cost of maintenance, etc., it is a practical

In the present-day competitive business situation, the retail-
ers as well as wholesalers are bound to place an order for
purchasing of an item in excess of the owned warehouse
capacity due to various reasons, namely price discount for
bulk purchase, limited capacity of owned warehouse in an
important market place, higher re-ordering cost, seasonal
product, inflation-induced demand, etc. Such a situation
creates the necessity for hiring an additional storage space
to store the excess units purchased. This additional stor-
age space is typically a rented warehouse. According to
market economy, inflation plays an important and signifi-
cant role in business. It increases the cost of goods as well
as other costs. To safeguard from this rising prices during
the inflation regime, generally an organisation prefers to
keep a higher inventory, thereby increasing the aggregate
demand. It requires additional storage space which is fa-
cilitated by a rented warehouse. Two-warehouse inventory
problems have consistently gained importance and drawn
the attention of world-wide researchers during the past few
decades. Reasons such as meeting the demand of seasonal
products, enjoying discounts for bulk purchase, etc. have
necessitated the purchase of goods in excess of the capac-
ity of owned warehouse (OW). For storing these quantities,
reconstructing a new warehouse being a much expensive
option, the inventory managers generally resort to a rented
warehouse (RW). Due to factors such as shifting of goods,
and common tradition to assume the inventory holding and
deterioration costs to be higher in RW than those in OW.
As a result, the inventory management stores goods in OW
before RW, but consumes the stocks of RW at the earli-
est, i.e. before consuming the stocks of OW. In this area,
a number of researchers has developed different types of
two warehouse inventory models considering realistic sit-
uations. The major assumptions in the existing works have
been summarised in Table 1.
Past few decades have witnessed various research works
being done on the replenishment problem for deteriorating
items such as seasonal products, volatile liquids, medicines,
perfumes, etc. An inventory model with a constant deterio-
ration rate was first proposed by Ghare and Schrader (1963).
With the consideration of a variable deterioration rate, this
model was further extended and modified by Covert and
Philip (1973). Shah (1977) proposed a generalised eco-
nomic order quantity (EOQ) model with a variable deterio-
ration rate and the allowance of the complete backlogging
of the unsatisfied demand. After a few years, a nonshortage
inventory model for deteriorating items with time-
proportional demand was proposed by Sachan (1984). Since
then several researchers such as Datta and Pal (1988),
Aggarwal and Jaggi (1989), Shiue (1990), Hariga and
Benkherouf (1994), Hariga (1995), Chakrabarti and
Chaudhuri (1997), Teng, Chern, Yang, and Wang (1999),

∗
Corresponding author. Email: aakbardil@rediffmail.com


C 2013 Taylor & Francis
 International Journal of Systems Science 1037

Table 1. Summary of related literature for two-warehouse inventory model.

Permissible Inventory
Author(s) and year Warehouses Deterioration Demand rate Inflation shortage policies

Hartely (1976) Two No Constant No No –

Sarma (1983) Two No Constant No No –
Sarma (1987) Two Yes Constant No Complete IFS
backlogging
Goswami and Chaudhuri Two No Linearly time No No –
(1992) dependent
Pakkala and Achary (1992) Two Yes Constant No Complete IFS
backlogging
Bhunia and Maiti (1994) Two No Linearly time No Complete IFS
dependent backlogging
Benkherouf (1997) Two Yes Time and stock No Complete IFS
dependent backlogging
Bhunia and Maiti (1998) Two Yes Linearly time No Complete IFS
dependent backlogging
Zhou (1998) Two Yes Time- No No –
dependent
Kar, Bhunia, and Maiti (2001) Two Yes Linearly time No Complete IFS
dependent backlogging
Zhou and Yang (2003) Two Yes Inventory level No No –
dependent
Yang (2004) Two Yes Constant Yes Complete IFS
backlogging
Yang (2006) Two Yes Constant Yes Partial IFS and SFI
backlogging
Lee (2006) Two Yes Constant No Complete IFS
backlogging
Chung and Huang (2007) Two Yes Constant No No –
Das, Maity, and Maiti (2007) Two No Inventory level No No –
dependent
Dey et al. (2008) Two No Dynamic Yes No –
Hsieh et al. (2008) Two Yes Constant Yes Complete IFS
backlogging
Niu and Xie (2008) Two Yes Constant No Complete IFS
backlogging
Rong, Mahapatra, and Maiti Two Yes Selling price No Partial and IFS
(2008) dependent complete
backlogging
Jaggi et al. (2011) Two and single Yes Linearly time Yes Partial IFS
dependent backlogging
Liang and Zhou (2011) Two Yes Constant No No –
Yang (2012) Two Yes Constant Yes Partial IFS and SFI
backlogging
Yang and Chang (2013) Two Yes Constant Yes Partial SFI
backlogging
Present paper Two and single Yes Linearly time Yes Partial IFS and SFI
dependent backlogging

Teng, Yang, and Ouyang (2003), Wee (1999), Papachristos
and Skouri (2000, 2003), Taleizadeh, Wee, and Jolai (2013)
and others have explored the different aspects of inventory
management for deteriorating items.
Apart from the rate of deterioration, other practically
important factors, which have been widely accepted by the
researchers to have crucial impact on the inventory policy
decisions, are inflation and time value of money. Buzacott
(1975) and Misra (1979) proposed inventory models with
the consideration of inflation for all the associated costs. Af-
ter two years, an EOQ model with the incorporation of the
effect of inflation and time value of money was developed
by Bierman and Thomas (1977). Misra (1979) developed an
inventory model with the assumption of different inflation
rates for different associated costs and constant demand.
Vrat and Padmanabhan (1990) developed an EOQ model
for items with stock-dependent consumption rate and expo-
nential decay. Datta and Pal (1991) proposed an inventory
model with linear time-dependent demand rate and short-
ages by considering the effects of inflation and time value
of money. Wee and Law (1999, 2001) developed inven-
tory models for deteriorating items by taking into account
1038 A.K. Bhunia et al.

the time value of money. In addition to these, researchers Assumptions:

such as Yang, Teng, and Chern (2001), Yang (2004, 2006),
Jaggi, Aggarwal, and Goel (2006), Hsieh, Dye, and Ouyang
(2008), Dey, Mondal, and Maiti (2008), Jaggi, Khanna, and
Verma (2011) and others have also contributed to this field
of research.
Yang (2004) proposed a two-warehouse inventory
model with a constant demand rate for deteriorating items
under inflation by considering two alternative situations.
In the first situation, he assumed a model which starts
with an instant order and ends with shortages. In the
second situation, the model begins with shortages and
ends without shortages. These models were extended by
Yang (2006) with the incorporation of partial backlog-
ging. Considering partial backlogging, Taleizadeh, Niaki,
and Makui (2012) and Taleizadeh, Pentico, Jabalameli, and
Aryanezhad (2013a, b) developed single-warehouse inven-
tory models. Jaggi et al. (2011) proposed an inventory
model considering a linear time-dependent demand rate for
deteriorating items, inflation and partial backlogging rate
in a two-warehouse system. Recently, Yang (2012) devel-
oped two-warehouse partial backlogging inventory models
with three-parameter Weibull distribution deterioration un-
der inflation. On the other hand, Yang and Chang (2013)
proposed a two-warehouse inventory model for deteriorat-
ing items with permissible delay in payment under inflation.
In this paper, a deterministic inventory model for linear
trend in demand under inflationary conditions with differ-
ent deterioration rates in two separate warehouses (RW and
OW) considering two different policies (inventory follows
shortage (IFS) and shortage follows inventory (SFI)) has
been studied. The replacement rate is infinite. The stocks in
RW are transferred to OW in a continuous release pattern
and the associated transportation cost is taken into account.
In OW, shortages, if any, are allowed and partially back-
logged with a rate dependent on the duration of the waiting
time up to the arrival of the next lot. The corresponding
problems have been formulated as nonlinear constrained
optimisation problems which have been solved by an effi-
cient soft computing method, viz. particle swarm optimisa-
tion (PSO). Finally, to illustrate the model, we have solved
a numerical example with different demands and partially
backlogging rates. Finally, to study the effect of changes
of different system parameters on initial stock level, max-
imum shortage level and cycle length with the minimum
cost of the system, sensitivity analyses have been carried
out by changing one parameter at a time and keeping the
others at their original values.
2. Assumption and notations
The following assumptions and notations have been used in
developing the mathematical model of the two-warehouse
inventory system.
(1) Replenishment rate is infinite and lead time is
constant.
(2) The OW has a limited capacity, whereas the RW
has unlimited capacity.
(3) The inventory costs (including holding cost and
deterioration cost) in RW are higher than those in
OW.
(4) The entire lot is delivered in one batch.
(5) The inventory planning horizon is infinite and the
inventory system involves only one item.
(6) Deterioration is considered only after the quantities
are stored in the warehouse. There is neither repair
nor replacement of the deteriorated units during the
inventory cycle.
(7) Shortages, if any, are allowed and unsatisfied de-
mand is partially backlogged. During the shortage
period, the backlogging rate is dependent on the
length of waiting time up to the arrival of the fresh
lot. This rate is denoted by γ (t) which is a dif-
ferentiable and decreasing function of time t with
0 ≤ γ (t) ≤ 1, γ (0) = 1 and limt→∞ γ (t) = 0. It
is to be noted that if γ (t) = 1 for all t, then short-
ages are completely backlogged.
Notations:
f (t) The demand rate which is a linear function
of t, i.e. f (t) = a + bt where a > 0, b ≥ 0
S Highest stock level at the beginning of stock-
in period
R Maximum shortage level
L1 -system Single-warehouse system
L2 -system Two-warehouse system
W Storage capacity of OW
γ (t) Backlogging rate which is a function of wait-
ing time t
α, β Deterioration rates in OW and RW, respec-
tively (0 < α, β  1)
r Rate of inflation
Co Replenishment cost per order
Cp Purchasing cost per unit
Cho Holding cost per unit per unit time in OW
Chr Holding cost per unit per unit time in RW
Cb Backlogging cost per unit per unit time
Cls Unit opportunity cost due to lost sale
TC2 Present value of the total relevant cost per
unit time in two-warehouse models
TC1 Present value of the total relevant cost per
unit time in single-warehouse models
TCW Boundary cost for single-warehouse systems
Io (t) , Ir (t) Inventory levels in OW and RW, respectively,
at time t
 International Journal of Systems Science 1039

tr Time at which the inventory level reaches to

zero in RW
to Time at which the inventory level reaches to
zero in OW
ts Time at which the shortage level reaches to
the lowest point in the replenishment cycle
T Cycle length
IFS Inventory follows shortage
SFI Shortage follows inventory
p_size Population size
m_gen Maximum number of generation
χ Constriction factor
c1 (> 0) Cognitive learning rate
c2 (> 0) Social learning rate
r1 , r2 Uniformly distributed random numbers lying
in the interval [0, 1].
(k) Figure 1. Graphical representation of two-warehouse inventory
vi Velocity of ith particle at kth generation/
iteration system with IFS policy.
(k)
xi Position of ith particle of population at kth
generation which are disposed continuously as they come to the selling
(k)
pi Best previous position of ith particle at kth point. Hence, the inventory level Ir (t) at RW satisfies the
generation following differential equation:
(k)
pg Position of the best particle among all the
particles in the population
Ir (t) + βIr (t) = −f (t) , 0 ≤ t ≤ tr (1)

with the condition

3. Two-warehouse model with IFS policy
In IFS policy, the inventory cycle starts with an instant or-
Ir (t) = 0 at t = tr . (2)
der and ends with shortages. The corresponding model is
a traditional model. In this model, initially, an enterprise
purchases S + R units of item. Then after fulfilling par- Again,
tially backlogged quantities, the on-hand inventory level
is S units. Out of these S units, W units are kept in OW Ir (t) = S − W at t = 0. (3)
and the rest S − W units are stored in RW. During the
time interval 0 ≤ t ≤ tr , the inventory level S − W units
in RW decreases for meeting up the customers’ demand Using (2), the solution of (1) is given by
and deterioration effect of an item and it reaches to zero

at t = tr . In OW, the inventory level W decreases during tr

the time interval 0 ≤ t ≤ tr due to deterioration only and Ir (t) = exp (−βt) exp (βt) f (t) dt, 0 ≤ t ≤ tr .
t
during tr ≤ t ≤ ts due to both demand and deterioration. (4)
At time t = to , the inventory level in OW reaches to zero. Again from (3) and (4), we have
Thereafter, shortages are allowed to occur during the time
interval to < t ≤ ts with a rate of γ (ts − t). At time t = ts  tr
(= T), the maximum shortage level is R. This entire cycle S=W+ exp (βt) f (t) dt. (5)
then repeats itself after the cycle length ts with the changed 0

demand as it is time dependent. The objective of this model

is to determine the optimal values of tr , to and ts such Again the inventory level Io (t) at OW during the time inter-
that the average cost of the system is minimised and also val 0 ≤ t ≤ ts satisfies the differential equations as follows:
to obtain the corresponding values of S and R. The pic-
torial representation of inventory situation is depicted in Io (t) + αIo (t) = 0, 0 ≤ t ≤ tr , (6)
Figure 1.
The stock depletion at RW during the time interval Io (t) + αIo (t) = −f (t) , t r < t ≤ to , (7)
0 ≤ t ≤ tr is mainly for meeting up the demand by the cus-
tomers and partly due to deterioration effect of the items Io (t) = −γ (ts − t) f (t) , to < t ≤ ts (= T ), (8)
1040 A.K. Bhunia et al.
 ts
subject to the conditions
Cls e−rts [1 − γ (ts − t)] f (t) dt,
to
Io (t) = W at t = 0, (9)
respectively.
Io (t) = 0 at t = to (10) Now the amounts of deteriorated units in both the RW
and OW during the time interval 0 ≤ t ≤ to are
and  
tr to
β Ir (t) dt and α Io (t) dt,
Io (t) = −R at t = ts (= T ). (11) 0 0

Again Io (t) is continuous at t = tr and to . respectively.

Using conditions (9)–(11), the solutions of differential Again the present value of the cost for deteriorated units
equations (6)–(8) are given by is
  tr  to 
−rt −rt
Io (t) = W exp (−αt) , 0 ≤ t ≤ tr , (12) Cp β e Ir (t) dt + α e Io (t) dt .
0 0
 to
= exp (−αt) exp (αt) f (t) dt, tr < t ≤ to , Hence, the present value of the total relevant cost per
t
(13) unit time during the cycle 0 ≤ t ≤ ts is given by
 ts
  tr
=R+ γ (ts − t) f (t) dt to < t ≤ ts (= T ). TC2 (to , ts ) = Co + Chr e−rt Ir (t) dt
t 0
(14)
 to  ts
−rt
+ Cho e Io (t) dt + Cb e−rt
Now using the continuity of Io (t) at time t = tr , we have 0 to
  ts 
 to × R+ γ (ts − u) f (u) du dt
W = exp (αt) f (t) dt. (15) t
tr  ts
+ Cls e−rts {1 − γ (ts − t)} f (t) dt
Again from the continuity of Io (t) at t = to , we have to
  tr
 ts + Cp β e−rt Ir (t) dt
R=− γ (ts − t) f (t) dt. (16) 0
to  to  
+α e−rt Io (t) dt T. (17)
Now the cumulative inventories in RW during 0 ≤ t ≤ tr 0
and OW during 0 ≤ t ≤ to are
  Hence, our problem is to determine the optimal val-
tr to
ues of to and ts by solving the following highly nonlinear
Ir (t) dt and Io (t) dt,
0 0 optimisation problem:

respectively. Minimise TC2(to , ts )

(18)
The present values of the inventory holding costs in RW subject to ts > to and to > 0.
and OW are
This is a highly nonlinear optimisation problem with
 tr  to
−rt −rt two decision variables to and ts .
Chr e Ir (t) dt and Cho e Io (t) dt,
0 0

respectively. 4. Single-warehouse model with IFS policy

On the other hand, the present values of the backlogging At time t = 0, an enterprise purchases S + R units of
cost and the opportunity cost due to lost sale are item. Then after fulfilling partially backlogged quantities,
the on-hand inventory level is S units. By the time to , the
 ts   ts  inventory level reaches to zero due to the combined effect of
Cb e−rt R + γ (ts − u) f (u) du dt and demand and deterioration and thereafter the shortages start
to t
to accumulate and continue up to ts with a rate of γ (ts − t).
 International Journal of Systems Science 1041

At time t = ts (= T), the maximum shortage level is R.

This entire cycle then repeats itself after the cycle length Io (t) = −γ (ts − t)f (t), to < t ≤ ts (= T ), (27)
ts . The objective of this model is to determine the optimal
values of to and ts such that the average cost of the system subject to the conditions
is minimised and also to obtain the corresponding values
of S and R. The inventory level Io (t) at OW during the Io (t) = W at t = 0, (28)
time interval 0 ≤ t ≤ ts satisfies the differential equations
as follows: Io (t) = 0 at t = to (29)

Io (t) + αIo (t) = −f (t), 0 ≤ t ≤ to , (19) and

Io (t) = −γ (ts − t)f (t) , to < t ≤ ts (= T ), (20) Io (t) = −R at t = ts (= T ). (30)

subject to the conditions
Again Io (t) is continuous at t = to .
In this case, the present value of the total relevant cost
Io (t) = S at t = 0, (21)
per unit time can be obtained as follows:
Io (t) = 0 at t = to (22)   to
and TCW ( ts ) = Co + Cho e−rt Io (t) dt
0
Io (t) = −R at t = ts (= T ). (23)  ts   ts 
−rt
+ Cb e R+ γ (ts − u) f (u) du dt
Again Io (t) is continuous at t = to . to
 ts
t

In this case, the present value of the total relevant cost + Cls e−rts {1 − γ (ts − t)} f (t) dt
per unit time can be obtained as follows: to
   
 
to
to + Cp α e−rt Io (t) dt T. (31)
TC1 (to , ts ) = Co + Chol e−rt Io (t) dt 0
0
 ts   ts 
In this case, the corresponding optimisation problem is
+ Cb e−rt R + γ (ts − u) f (u) du dt given by
to t
 ts
+ Cls e−rts {1 − γ (ts − t)} f (t) dt Minimise TCW (ts )
to (32)
  to   subject to ts > to and to > 0.
+ Cp α e−rt Io (t) dt T. (24)
0 This is a highly nonlinear optimisation problem with a
single decision variable ts .
In this case the corresponding optimisation problem is
given by
5. Two-warehouse model with SFI policy
Minimise TC1(to , ts ) In this policy, the inventory cycle begins with shortage
(25)
subject to ts > to and to > 0. and ends without shortage. Initially (i.e. at time t = 0),
shortages start to occur with a rate of γ (ts − t) and continue
This is a highly nonlinear optimisation problem with up to the time t = ts . At time t = ts , S + R units of item
two decision variables to and ts . are replenished. Then after fulfilling partially backlogged
quantities, the on-hand inventory level is S units. Out of S
units, W units are kept in OW and remaining S − W units
4.1. Boundary cost for single-warehouse system are stored in RW. At time tr , the inventory level in RW
For finding the boundary cost for a single-warehouse sys- reaches to zero due to the combined effect of demand and
tem, the initial stock level will be the capacity of OW, i.e. deterioration and also the inventory level W in OW reduces
W. In this case, the inventory level Io (t) at OW during the due to the effect of deterioration. During the period tr ≤
time interval 0 ≤ t ≤ ts satisfies the differential equations t ≤ to , the inventory level in OW decreases due to demand
as follows: and deterioration simultaneously, and at time t = to ( = T ),
the level reaches to zero. The pictorial representation of this
Io (t) + αIo (t) = −f (t), 0 ≤ t ≤ to , (26) policy is shown in Figure 2.
1042 A.K. Bhunia et al.

Io (t) = 0 at t = 0, (41)

Io (t) = S at t = ts (42)
and
Io (t) = 0 at t = to (= T ). (43)

Again,

Io (t) is continuous at t = tr . (44)

Using conditions (41)–(44), the solutions of differential

equations (38)–(40) are given by
Figure 2. Graphical representation of two-warehouse inventory  t
system with SFI policy. Io (t) = γ (ts − t) f (t) dt, 0 ≤ t < ts , (45)
0

The stock depletion at RW during the time interval = W exp α(ts − t), t s ≤ t ≤ tr , (46)
ts ≤ t ≤ tr is mainly for meeting up the demand by the cus-  to
tomers and partly due to deterioration effect of the items = exp (−αt) exp (αt) f (t) dt, tr < t ≤ to .
which are disposed continuously as they approach the sell- t
ing point. Hence, the inventory level Ir (t) at RW satisfies (47)
the differential equation
Now using the continuity of Io (t) at time t = tr , we
Ir (t) + βIr (t) = −f (t) , t s ≤ t ≤ tr , (33) have
 to
with the condition W exp{α(ts − tr )} = exp(−αtr ) exp(αt)f (t) dt.
tr
(48)
Ir (t) = 0 at t = tr . (34) As the highest shortage level is R which occurs at t =
Again, ts− , the value of R is given by
 ts
Ir (t) = S − W at t = ts . (35) R=− γ (ts − t) f (t) dt. (49)
0
Using (34), the solution of (33) is given by Now the cumulative inventories in RW during ts ≤ t ≤
 tr
tr and OW during ts ≤ t ≤ to are
 tr  to
Ir (t) = exp (−βt) exp (βt) f (t) dt, t s ≤ t ≤ tr .
t Ir (t) dt and Io (t)dt,
(36) ts ts
Again from (35) and (36), we have respectively.
 tr
The present values of the inventory holding cost in RW
S=W+ exp {β(t − ts )} f (t) dt. (37) and OW are
ts  tr  to
Chr e−rt Ir (t) dt and Cho e−rt Io (t) dt,
Again the inventory level Io (t) at OW during the time ts ts
interval 0 ≤ t ≤ to satisfies the differential equations as fol- respectively.
lows: On the other hand, the present values of the backlogging
cost and the opportunity cost due to lost sale are
Io (t) = −γ (ts − t) f (t) , 0 ≤ t < ts , (38)
 ts  t 
−rt
Io (t) + αIo (t) = 0, ts ≤ t ≤ tr , (39) Cb e γ (ts − u) f (u) du dt and
0 0
 ts
Io (t) + αIo (t) = −f (t) , tr < t ≤ to (= T ), (40) Cls e−rts [1 − γ (ts − t)] f (t) dt,
0

subject to the conditions respectively.

 International Journal of Systems Science 1043

Now the amounts of deteriorated units in both RW and and

OW are
 tr  to Io (t) = 0 at t = to (= T ). (56)
β Ir (t) dt and α Io (t) dt,
ts ts In this case, the present value of the total relevant cost
per unit time can be obtained as follows:
respectively.
Again the present value of the cost for deteriorated units   to
is TC1(ts , to ) = Co + Cho e−rt Io (t) dt
ts
  tr  to    
−rt −rt ts t
Cp β e Ir (t) dt + α e Io (t) dt . + Cb e−rt
γ (ts − u) f (u) du dt
ts ts
0 0
 to

Hence, the present value of the total relevant cost per + Cls e−rts {1 − γ (ts − t)} f (t) dt
ts
unit time during the cycle 0 ≤ t ≤ to is given by   to  
+ Cp α e−rt Io (t) dt T. (57)
  ts
tr
T C2(ts , to ) = Co + Chr e−rt Ir (t) dt
ts In this case, the corresponding optimisation problem is
 to given by
+ Cho e−rt Io (t) dt
ts
 ts  t  Minimise TC1(ts , to )
(58)
+ Cb e−rt γ (ts − u) f (u) du dt subject to to > ts and ts > 0.
0 0
 to
−rts
+ Cls e {1 − γ (ts − t)} f (t) dt 6.1. Boundary cost for single-warehouse system
ts
  tr  to   with SFI policy
+ Cp β e−rt Ir (t) dt + α e−rt Io (t) dt T. This cost can be obtained in a similar way of boundary cost
ts ts for single-warehouse system with IFS policy.
(50) In this case, the corresponding optimisation problem is
given by
Hence, our problem is to determine the optimal values Minimise TCW(to )
of ts and to by solving the following nonlinear optimisation (59)
subject to to > ts and ts > 0,
problem:
where
Minimise TC2(ts , to )  
(51) to
subject to to > ts and ts > 0.
TCW(to ) = Co + Cho e−rt Io (t) dt
ts
 ts  t 
6. Single-warehouse model with SFI policy + Cb e−rt γ (ts − u) f (u) du dt
0 0
In this case, Io (t) at OW during the time interval 0 ≤ t ≤ to  to
satisfies the differential equations as follows: + Cls e−rts {1 − γ (ts − t)} f (t) dt
ts
   
Io (t) = −γ (ts − t)f (t), 0 ≤ t < ts , (52) to
+ Cp α e−rt Io (t) dt T. (60)
ts
Io (t) + αIo (t) = −f (t), ts ≤ t ≤ to (= T ), (53)

subject to the conditions 7. Solution procedure

Now, let us discuss the solution procedure of the optimi-
Io (t) = 0 at t = 0, (54) sation problems of both the inventory models with IFS
and SFI policies. Depending on the average costs com-
Io (t) = S at t = ts (55) puted from single- and two-warehouse systems, the crucial
decision regarding whether hiring a rented warehouse is
1044 A.K. Bhunia et al.
beneficial or not is made. In order to determine the cycle
length and the highest inventory level along with the best
found average cost of the system with IFS and SFI policies
(basically it is the optimal cost but optimality cannot be
proved analytically), we propose the following algorithm.
Step 1: Read different input parameters of the inventory
system.
Step 2: Compute the boundary cost TCW by solving
the optimisation problem for single-warehouse in-
ventory system for S = W.
Step 3: Compute S ∗ (the best found value of S) for
two-warehouse inventory system with average cost
TC2. If S ∗ > W , go to Step 5, otherwise go to
Step 4.
Step 4: Compute S ∗ for single-warehouse system with
average cost TC1. If S ∗ < W , go to Step 6, other-
wise the solution is not admissible (feasible) for the
given input parameters. Go to Step 7.
Step 5: If TC2 < TCW, S = S ∗ is the best found solu-
tion for a two-warehouse inventory system, other-
wise S = W is the best found solution. In the latter
case, we have the inventory situation with only one
warehouse, i.e. only OW which is filled to its maxi-
mum capacity. Go to Step 7.
Step 6: If TC1 < TCW, S = S ∗ , otherwise S = W is the
best found solution for a single-warehouse system.
Go to Step 7.
Step 7: Stop.
In Steps 2–4 of the proposed algorithm, the optimi-
sation problems of single- and two-warehouse inventory
systems are to be solved. Now there is an important ques-
tion: by which method can these problems be solved? As
the optimisation problems in (18), (25), (32), (51), (58) and
(59) in both IFS and SFI policies are highly nonlinear in
nature, so to find the analytical solutions (if any) of these
problems is a difficult task. Furthermore, if we apply ei-
ther direct or gradient-based iterative method, in most of
the cases, it gives local optimum value. Hence, we need to
employ a meta-heuristic search algorithm for solving these
problems.
A number of researchers have successfully used meta-
heuristic methods to solve complicated optimisation prob-
lems in different fields of scientific and engineering disci-
plines. Some of these algorithms are simulated annealing,
tabu search, genetic algorithm, PSO, ant colony optimisa-
gorithm is inspired by the social behaviour of bird flocking
or fish schooling. In PSO, the potential solutions, called
particles, fly through the search space of the problem by
following the current optimum particles. PSO is initialised
with a population of random particle positions (solutions)
and then searches for optimum in generation to generation.
In every iteration, each particle is updated with two best
positions (solutions). The first one is the best position (so-
lution) so far reached by the particle and this best position is
(k)
said to be personal best position and called pi . The other
one is the current best position (solution), obtained so far
by any particle in the population. This best value is a global
(k)
best value and called pg .
In each generation, the velocity and position of ith
(i = 1, 2, . . . , p size) particle are updated by the following
rules:
(k+1)
vi
(k) (k) (k)
= wv i + c1 r1 pi − xi + c2 r2 pg(k) − xi
(k)
(61)
and
(k+1) (k) (k+1)
xi = xi + vi , (62)
where w is the inertia weight and k (= 1, 2, . . . , m- gen)
indicates the iterations (generations). The constants
c1 (> 0) and c2 (> 0) are the cognitive and social learn-
ing rates, respectively, which are the acceleration constants
(k)
responsible for varying the particle velocity towards pi
(k)
and pg , respectively.
From (61), it is clear that the updated velocity of ith
particle is calculated by considering three components:
(i) previous velocity of the particle, (ii) the distance be-
tween the particle’s best previous and current positions and
(iii) the distance between swarm’s best experience (the po-
sition of the best particle in the swarm) and the current
position of the particle. The velocity in (61) is also limited
by the range [−vmax , vmax ] , where vmax is called the maxi-
mum velocity of the particle. The choice of a too small value
for vmax can cause very small updating of velocities and po-
sitions of particles at each iteration. Hence, the algorithm
may take a long time to converge and faces the problem of
getting stuck to local minima. To overcome these situations,
Clerc (1999) and Clerc and Kennedy (2002) proposed an
improved velocity update rules employing a constriction
factor χ . According to them, the updated velocity is given
by
tion, etc. Among these algorithms, the widely used efficient 



algorithm PSO has been employed for solving the optimi- (k+1) (k) (k) (k) (k)
vi =χ vi + c1 r1 pi − xi + c2 r2 pg(k) − xi .
sation problems mentioned earlier. (63)
PSO is a population-based heuristic global search algo- Here, the constriction factor χ is expressed as
rithm based on the social interaction and individual expe-
rience. It was proposed by Eberhart and Kennedy (1995) 2
and Kennedy and Eberhart (1995). It has widely been used χ=  , (64)
 
in finding the solutions of optimisation problems. This al- 2 − φ − φ 2 − 4φ 
 International Journal of Systems Science
where φ = c1 + c2 , φ > 4 and χ is a function of c1 and c2 .
Typically, c1 and c2 are both set to be 2.05. Thus, φ is set
to 4.1 and the constriction coefficient χ is 0.729. This PSO
is known as PSO-CO, i.e. constriction coefficient-based
PSO.
The search procedure of the PSO can be summarised as
follows.
Step 1: Initialise the PSO parameters and bounds of the
decision variables of the optimisation problem.
Step 2: Initialise a population of particles with random
positions and velocities.
Step 3: Evaluate the fitness of all particles.
Step 4: Keep track of the locations where each individ-
ual has its highest fitness so far.
Step 5: Keep track of the position with the global best
fitness.
Step 6: Update the velocity of each particle.
Step 7: Update the position of each particle.
Step 8: If the stopping criterion is satisfied, go to
Step 9, otherwise go to Step 3.
Step 9: Print the position and fitness of global best
particle.
Step 10: End.
Moreover, the flowchart of the PSO algorithm is shown
in Figure 3.
Using this technique, Taleizadeh et al. (2010) and
Taleizadeh, Pentico, Aryanezhad, and Ghoreyshi (2012)
solved supply chain inventory problems considering some
realistic situations.
8. Numerical examples
To illustrate the developed inventory model, the following
numerical example has been solved with different inventory
policies and backlogging rates. Here, W = 100, a = 400, b
= 15, δ = 0.6, Co = $100, Cho = $0.2, Chr = $0.6, Cb =
$3.0, C1 = $15.0, Cp = $10.0, α = 0.05, β = 0.03 and r
= 0.06. The values of the model parameters considered in
this numerical example are not collected from any real life
case study, but are realistic. In finding the solution, the soft
computing method PSO-CO has been used. This PSO-CO
has been coded in C programming language. The compu-
tational work has been done on a PC with Intel Core-2-duo
2.5 GHz Processor in LINUX environment. For each case,
20 independent runs have been performed by the proposed
PSO of which the best value of the cost function has been
taken.
Also, to test the performance of our developed PSO-CO
for solving the problems for each example, mean, coeffi-
cient of variation of the value of the cost function and the
average time of 20 runs have been calculated.
From Table 2 and 3, it is observed that the average cost
of the system with SFI policy is lower than that with IFS
1045
policy. Therefore, the management of any organisation may
select the inventory system with SFI policy.
For the entire computation, the values of PSO parame-
ters are considered as follows:
p_size = 100, m_gen = 100, C1 = 2.05 and C2 = 2.05.
The initial velocity has been assigned randomly be-
tween −Vmax and Vmax , where Vmax is set to be equal to
20% of the range of each variable in the search domain.
From the statistical analysis of the result obtained for dif-
ferent cases (cf. Table 4 and 5), it is clear that the proposed
soft computing method PSO-CO is stable.
9. Sensitivity analysis
For the given numerical example mentioned above, sensi-
tivity analyses have been performed to study the effect of
underestimation or overestimation of system parameters on
the best found values of the initial stock level, maximum
shortage level and cycle length with the minimum average
cost of the system. The percentage changes corresponding
to the above-mentioned best found values of the average
cost of the system are taken as measures of sensitivity. These
analyses have been carried out for the inventory model with
SFI policy, f (t) = a + bt and γ (ts − t) = 1+δ(t1s −t) , as it is
less expensive than other models. These have been per-
formed by changing (increasing and decreasing) the pa-
rameters by −20% to + 20%. The results are obtained by
changing one parameter at a time and keeping the others at
their original values. The results of these analyses are given
in Table 6.
Based on the computational results as shown in
Table 6, the following observations can be made.
(1) Average cost of the system is more sensitive with
respect to parameters a (location parameter of de-
mand), C0 (ordering cost), Chr (holding cost in RW)
and α and β (deterioration rates). It is also moder-
ately sensitive with respect to Cho (holding cost
in OW) and Cp (purchase cost), whereas it is in-
sensitive with the changes of the shape parameter
b of demand, backlogging parameter δ, backlog-
ging cost Cb , opportunity cost Cls and the inflation
rate r.
(2) Table 6 reveals that the optimum cycle length T ∗ is
highly sensitive with respect to parameters a (loca-
tion parameter of demand), C0 (ordering cost), Chr
(holding cost in RW) and β (deterioration rate in
RW). T ∗ is also moderately sensitive with respect
to Cp (purchase cost) and α (deterioration rate in
OW). It is insensitive with respect to δ, Cho , Cb ,
Cls and r.
(3) The optimum highest stock level S ∗ is highly sen-
sitive with respect to parameters a, C0 , Chr , α and
1046 A.K. Bhunia et al.

Figure 3. Flowchart of the PSO algorithm.

 International Journal of Systems Science 1047

Table 2. Best found solution of the model with IFS policy.

Best found
Case f (t) γ (ts − t) tr to ts (= T ) S∗ R∗ minimum cost Action
1
1 a + bt 0.5089 0.7503 0.7632 305.39 5.12 250.89 L2 -system
1 + δ(ts − t)
1
2 a 0.5033 0.7455 0.7720 302.84 10.37 247.31 L2 -system
1 + δ(ts − t)
3 a + bt e−δ(ts −t) 0.4761 0.7135 0.7331 293.53 7.93 250.06 L2 -system
4 a e−δ(ts −t) 0.4793 0.7218 0.7491 293.08 10.71 247.50 L2 -system

Table 3. Best found solution of the model with SFI policy.

Best found
Case f (t) γ (ts − t) ts tr t0 (= T ) S∗ R∗ minimum cost Action
1
1 a + bt 0.0258 0.5369 0.7848 306.30 10.13 246.15 L2 -system
1 + δ(ts − t)
1
2 a 0.0261 0.5397 0.7892 307.05 10.23 245.66 L2 -system
1 + δ(ts − t)
3 a + bt e−δ(ts −t) 0.0316 0.5245 0.7631 300.73 12.34 248.09 L2 -system
4 a e−δ(ts −t) 0.0343 0.5421 0.7918 304.69 13.37 244.43 L2 -system

Table 4. Statistical analysis of the results for different demand and backlogging rates in IFS policy.

Case 1 2 3 4

Mean objective value (minimum cost) 250.9232 247.3605 242.8728 289.8005

SD of objective value∗ 0.039687633 0.048007936 0.034717296 0.050832542
COV of Object-value∗ 0.000158 0.000194 0.000143 0.000175
∗ SD: standard deviation; COV: coefficient of variation.

Table 5. Statistical analysis of the results for different demand and backlogging rates in SFI policy.

Case 1 2 3 4

Mean objective value (minimum cost) 246.18 245.6733 241.1876 264.5211

SD of objective value∗ 0.030166206 0.012780193 0.009952267 0.231468993
COV of Object-value∗ 0.000123 5.2 × 10−05 4.13 × 10−05 0.000875
∗ SD: standard deviation; COV: coefficient of variation.

β. It is moderately sensitive with respect to Cho
and Cp ; however, it is insensitive with respect to
b, δ, Cb , Cls and r.
(4) The optimum highest shortage level R ∗ is
strongly sensitive with respect to parameters a,
δ, C0 , Cho , Cls , α and β. It is moderately sen-
sitive with respect to Chr , Cb and Cp . However, it
is insensitive with respect to b and r.
Also to study the performance of PSO-CO, sensitivity
analyses (for f (t) = a + bt and γ (ts − t) = 1+δ(t1s −t) ) have
been carried out numerically on the highest inventory level
(S), highest shortage level (R) and cost of the system with
respect to parameters c1 (cognitive learning rate) and c2
(social learning rate). In each case, 20 independent runs
have been performed by PSO, of which the best value of
the cost function has been considered. The results have been
shown in Table 7. From Table 7, it is evident that the values
of S, R and the minimum cost are the same for different
values of c1 and c2 .
10. Conclusion
In inventory management, there arise some important
questions.
How, when and where to stock the goods? Sometimes
the management authorities are bound to replenish more
goods (larger than the capacity of OW) to reduce the average
1048 A.K. Bhunia et al.

Table 6. Sensitivity analysis with respect to different parame- Table 7. Sensitivity analysis with respect to PSO parameters c1
ters of the inventory system with SFI policy, f (t) = a + bt and and c2 with SFI policy, f (t) = a + bt and γ (ts − t) = 1+δ(t1s −t) .
γ (ts − t) = 1+δ(t1s −t) .
Best found
% change in c1 c2 S R minimum cost
% changes of average
1.90 2.20 306.30 10.13 246.15
Parameter parameters cost T∗ S∗ R∗
1.95 2.15 306.30 10.13 246.15
a −20 −10.84 6.11 −15.05 −9.21 2.00 2.10 306.30 10.13 246.15
−10 −5.35 5.95 −4.61 −2.22 2.05 2.05 306.30 10.13 246.15
10 5.11 −3.82 5.75 3.43 2.10 2.00 306.30 10.13 246.15
20 9.99 −9.09 8.85 9.45 2.15 1.95 306.30 10.13 246.15
b −20 −0.04 0.52 0.48 0.21 2.20 1.90 306.30 10.13 246.15
−10 −0.02 0.14 0.11 0.08 2.05 2.10 306.30 10.13 246.15
10 0.02 −0.03 0.08 −2.36 2.10 2.10 306.30 10.13 246.15
20 0.04 0.69 0.70 2.01 2.15 2.10 306.30 10.13 246.15
δ −20 0.91 −1.88 −0.68 16.89 2.10 2.15 306.30 10.13 246.15
−10 1.11 −2.05 −0.55 7.88 2.20 2.15 306.30 10.13 246.15
10 1.41 −3.03 −0.98 −10.23 2.20 2.20 306.30 10.13 246.15
20 1.53 −2.67 −0.51 −12.75
Co −20 −10.94 −10.38 −10.27 −12.85
−10 −5.32 −4.92 −4.86 −6.54
10 5.05 5.15 5.18 3.88 In inventory control theory, this type of problem is known
20 9.96 5.97 5.82 9.43 as a two-warehouse inventory problem.
Cho −20 −7.02 2.15 2.45 −6.60
−10 −3.66 0.93 1.19 −6.13 In this paper, for the first time, an attempt has been
10 3.98 −0.50 −0.73 5.87 made to develop two-warehouse inventory models with IFS
20 8.26 −1.18 −1.52 8.70 and SFI policies incorporating the different preservation
Chr −20 21.79 5.49 5.83 −4.74 facilities in OW and RW for deteriorating items. It is also
−10 −3.34 5.54 5.83 −3.19 assumed that the preservation facility in RW is better than
10 3.10 −5.19 −5.53 4.52
20 5.99 −9.39 −9.92 6.20 that in OW. As the rate of demand is assumed to be time
Cb −20 −0.04 −0.18 −0.27 2.46 dependent, so the entire cycle over the first period cannot
−10 −0.02 0.17 0.14 0.64 be repeated after the cycle length T. It can subsequently
10 0.02 0.59 0.59 0.37 be repeated with the changed value of the constant ‘a’
20 0.04 0.64 0.72 −1.49 computed from ‘a + bT’ (where T is the associated value
Cls −20 −0.37 0.64 −0.07 20.07
−10 −0.17 0.60 0.32 8.15 of the previous period).
10 0.14 −0.13 0.17 −8.29 In IFS policy, shortages are considered to be at the end
20 0.26 0.54 1.02 −13.06 of the cycle, whereas in the case of SFI policy these are
Cp −20 −4.87 4.41 4.67 −3.30 considered to be at the beginning of the cycle. Now there
−10 −2.42 1.94 2.13 −3.47 is a question: which policy is less expensive? Its answer
10 2.38 −1.78 −1.88 0.93
20 4.72 −2.34 −2.59 4.68 cannot be given analytically due to highly nonlinear nature
α −20 −18.92 4.81 −16.15 −19.34 of the corresponding optimisation problem. From the nu-
−10 −8.30 2.37 −5.84 −6.76 merical example, it is observed that Model 2 (model with
10 6.70 −0.52 5.02 8.23 SFI policy) is less expensive than Model 1 (i.e. model with
20 12.25 −0.75 8.89 11.56 IFS policy). Hence from the economical point of view, it
β −20 −12.56 5.21 −26.00 −13.11
−10 −6.60 5.40 −10.66 −7.32 can be concluded that one can choose Model 2 (i.e. Model
10 6.06 −10.58 2.61 2.51 with SFI policy).
20 11.43 −18.08 4.96 13.74 For further study, one can extend the proposed model
r −20 0.15 0.33 0.40 −1.74 by incorporating some more realistic features, such as
−10 0.08 0.54 0.54 0.27 inventory-level-dependent demand, price-dependent de-
10 −0.07 0.72 0.66 2.37
20 −0.15 0.95 1.03 −1.60 mand, quantity discount and interval-valued inventory
costs. Also, the model can be extended to multi-period
finite-horizon model.

cost of the system. The reason behind this is to obtain the

discount for bulk purchase, reduce the costs of re-ordering, Acknowledgements
meet the higher demand, availability of seasonal products The authors are grateful for valuable comments and suggestions
with lower cost, etc. In this situation, an additional storage from the respected reviewers. Their valuable comments and sug-
space (termed as RW) is required to store the excess goods. gestions have enhanced the strength and significance of our paper.
 International Journal of Systems Science
Notes on contributors
A.K. Bhunia is an associate professor in the Department of Math-
ematics, The University of Burdwan, India. Several students ob-
tained their PhD degree under his supervision. His research inter-
ests include computational optimisation, soft computing, interval
mathematics, interval ranking, etc. He has published several re-
search papers in various international SCI journals. He has also
written two research monographs and a book. He is also an asso-
ciate editor of the Springer journal ‘OPSEARCH’.
Ali Akbar Shaikh is a faculty member of Krishnagar Government
College, India. He has published three research papers in referred
journals. His research interests include inventory control theory,
interval optimisation and PSO.
R.K. Gupta is an assistant professor in the Department of
Commerce & Management in West Bengal State University, India.
He has published eight research papers in referred journals. His
research interest includes optimisation in reliability management,
inventory control, transportation management and applications of
genetic algorithm in managerial decision-making. He has authored
a research monograph. Presently, he is working as an associate
editor of ‘International Journal of Productivity Management and
Assessment Technologies’.
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