# D-Policy for a Production Inventory System with Perishable Items

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1 Chapter 6 D-Policy for a Production Inventory System with Perishable Items 6.1 Introduction So far we were concentrating on invenory with positive (random) service time. In this chapter we concentrate on an inventory system with negligible service time coupled with a control policy. We consider a production inventory system of items having random lifetimes. We introduce a D-policy. According to this policy the production process is activated only when the accumulated workload exceeds a threshold D (> 0). Workload accumulates due to demands and perishability. Once the production process is switched on, it continues till the inventory level reaches a maximum S (> 0). When the inventory level reaches zero, and the accumulated workload has not reached the threshold value D, then the production starts immediately to minimize loss of demands. Whenever the inventory level reaches S, the production is stopped. Thereafter there is depletion in the inventory due to demand and/ decay. We assume that only items that are kept in the inventory are subject to decay. The advantage of this problem is that if the production cost is high, we can find an optimal D which minimizes the overall cost or 117

2 maximizes the net profit. We obtain the system state distribution, expected length of time the production is continuously on and an optimal D which maximizes the profit. Very little investigation on production inventory has been made in the past. Kalpakam and Sapna [28] analyse a perishable (s, S) system with Poisson demands and exponentially distributed lead times. They analyse the case of arbitrarily distributed lead times in [29]. In both the cases demand occurring during stock-out periods are assumed to be lost. Sharafali [55] considers a production inventory operating under (s, S) policy where demands arrive according to Poisson process and production output is also Poisson. Altiok [1] analyses a production inventory system with compound Poisson demand and phase-type distribution for the processing time. Krishnamoorthy and Raju [36] discussed the case N-policy for a production inventory system with random lifetimes. N-policy is introduced to inventory by Krishnamoorthy and Raju. N is the number of backlogs required to start the production. They obtain some performance measures and an optimal N which minimizes a suitable cost function. Krishnamoorthy and Mohammed Ekramol Islam [32] analysed a production inventory with retrial of customers. Krishnamoorthy and Ushakumari [38] consider a D-policy for a k-out-of-n: G system with repair. They obtain system state distribution, system reliability, expected number of times the system is down in a cycle etc. They obtain an optimal D value which maximizes a suitably defined cost function. 6.2 Mathematical modelling and analysis In this model no backlog is allowed and the machine does not breakdown. Demands arrive according to Poisson process of rate λ. Lifetime of items is exponentially distributed with parameter β. The production time is also exponentially distributed with parameter. We obtain the stationary dis- 118

3 tribution of the system by identifying a continuous time bivariate Markov chain. Let I(t); t 0 be the inventory level at time t. I(t) can take values in {0, 1, 2,... S}. Let { 1 if the production process is on at time t X(t) = 0 otherwise. Then {(I(t), X(t)); t 0} is a two-dimensional Markov process in the state space E = {(0, 1), (1, 1) (S 1, 1)} {(1, 0), (2, 0), (S, 0)}. Let G(r, a) = P r (the production is not activated at the r th demand and/ failure) = P r (the workload is less than D at the r th demand and/ failure) r 1 D (D)j = 1 e ; r = 0, 1,... S 1 j! j=0 where a = D. ( ) Also P ij (t) = P r (I(t), X(t)) = (i, j) (I(0), X(0)) = (S, 0) for (i, j) E. The Kolmogorov forward differential equations are given by P S,0(t) = (λ + Sβ)P S,0 (t) + P S 1,1 (t). P i,0(t) = (λ + iβ)p i,0 (t) + [λ + (i + 1)β]P i+1,0 (t)g(s i, a) for i = S 1, S 2,..., 1. P i,1(t) = (λ + iβ + )P i,1 (t) + P i 1,1 (t) + (λ + (i + 1)β)P i+1,0 (1 G(S i, a)) + (1 δ i,s 1 )(λ + (i + 1)β)P i+1,1 (t) for i = S 1, S 2,..., 1 P 0,1(t) = P 0,1 (t) + (λ + β)p 11 (t) + (λ + β)p 1,0 (t). 119

4 6.2.1 Limiting probabilities Let Then q i,0 = λ + Sβ λ + iβ q i,1 = λ + Sβ q i,0 = lim P i,0 (t), for t i = 1, 2,... S q i,1 = lim P i,1 (t), for t i = 0, 1, 2,... S 1 q S,0 = lim P S,0 (t). t S i G(j, a)q S,0, for i = 0, 1,... S 1 S i S j k=i+1 j 1 G(r, a)q S,0, for i = 0, 1,... S 1 where (i) y λ+kβ k=j = 1 if y < j (ii) k G(r, a) = 1 if k < r (iii) q S,0 is determined such that the total probability is one Performance measures (i) Expected inventory level is given by Sq S,0 + iq i,0 + iq i,1 = + i=0 i=0 i λ + Sβ { S + [ S i S j k=i+1 i λ + Sβ λ + iβ S i G(j, a) j 1 ]} G(r, a) q S,0. 120

5 (ii) Now we derive the distribution of the time during which the production is continuously on. To derive the distribution consider the Markov chain on the state space E = {(0, 1), (1, 1), (2, 1),, (S 1, 1), (S, 0)}, with (S, 0) as absorbing state. Then the distribution of the duration of time the production is continuously on is of phase-type with distribution function F (x) given by F (x) = 1 α exp(t x)e; x 0, where T is a non-singular matrix obtained by deleting the last row and last column of the infinitesimal generator matrix of the Markov chain on E, e = (1, 1,..., 1) is a row vector of order S with all entries equal to one and α = (α 0, α 1,..., α S 1 ) is the initial probability vector of order S with and α 0 = 0. α S i = e D (D) i 1 ; i = 1, 2,..., S 2. (i 1)! α 1 = 1 S 2 e D (D) i 1 (i 1)! The expected length of time the production is continuously on is given by ( 1)αT 1 e. Inversion of T may often be difficult. So we use a recursive method to find the expected value. Let T i,1 = time to reach (i + 1, 1) from (i, 1) for i = 0, 1,..., S 2 and T S 1,1 = time to reach (S, 0) from (S 1, 1) E[T i,1 ] = 1 + λ+iβ E[T i 1,1]; i = 1, 2,..., S 1 E[T 0,1 ] = 1 ; since once the process is in state (0, 1), it is not possible to move further to the left. Then we get E[T i,1 ] = i i k=j 121 ; i = 0, 1,... S 1.

6 Now the expected time E(B) the production is continuously on is given by E(B) = E[T S 1,1 ]e D + {E[T S 2,1 ] + E[T S 2,1 ]}(D)e D + S 2 + {E[T 0,1 ] + E[T 1,1 ] + + E[T S 1,1 ]}[1 = [ t=1 S t 1 S t 1 k=j ]G(t, a). j=0 (D) j e D ] j! (iii) The average amount of time the production is continuously off is given by E(I) = i G(i, a) + S λ + (S i + 1)β S 1 λ + β [1 G(i, a)]. The expected cycle length (i.e., the expected time for (S, 0) to (S, 0)) is E(B) + E(I). (iv) The expected number of visits to state (0, 1) in a cycle is q 0,1 q S,0. Therefore the expected amount of time the system is empty in a cycle is 1 q 0,1 = 1 + Sβ [λ q S,0 S S j k=1 j 1 G(r, a)] 6.3 Control problem We derive the optimal value of the control variable D to get the maximum profit. Let K be the profit per unit time by way of the switched off production and C be the loss per unit time when the system is empty. Then the expected profit per cycle is i E(P ) = KE(I) = K{ G(i, a)+ S S 1 λ + (S i + 1)β λ + β [1 G(i, a)]}. 122

7 Expected loss per cycle is E(L) = C Expected amount of time the system is empty = C[ λ + Sβ S S j j 1 G(r, a)]. k=1 Expected net profit = E(P ) E(L). 6.4 Special case Here we consider D-policy for a production inventory system without perishability (i.e., β = 0). We have limiting probabilities as S i q i,0 = G(j, a)q S,0 ; i = 1, 2,..., S 1 q i,1 = [ S i ( λ S i )j k=1 ] G(k, a) q S,0 ; i = 0, 1,..., S 1 where q S,0 is determined such that total probability is one. Expected inventory level is given by [ S i S + i G(j, a) + i=0 ( λ S j )j S i i{ k=1 ] G(k, a)} q S,0. 123

8 6.5 Numerical illustration For the values of the parameters S = 10, λ = 1, β = 0.05, = 2, expected profit per cycle, expected loss per cycle and net profit were obtained and are tabulated below. Table 6.1: S = 10, λ = 1, β = 0.05, = 2, K = 10, C = 10 D expected profit per cycle Expected loss per cycle Net profit *

9 We get an optimal D value 10.4 with the corresponding net profit Concluding remarks In this thesis we have discussed inventory models with negligible and/ positive service time. In the second chapter we discussed N-policy for an (s, S) inventory system with positive service time. In the third chapter we discussed the problem of effective utilization of idle time of a server in an (s, S) inventory system with positive and/ negligible service time. In the fourth chapter we discussed the transfer of customers along with inventory, if available, in two parallel service facilities following (s, S) policy with positive service time. In all these chapters we consider exponentially distributed service time. But in the fifth chapter we introduce arbitrarily distributed service time. Here we consider M G 1 type inventory system. In the sixth chapter we consider a production inventory with items having random lifetimes with negligible service time. Here we introduce a control policy called D-policy. All these problems are of high importance in any industrial related management problems and production process. 125

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