An Economic Production Quantity Model under Market Demand Decline and Inflation

Abstract

Products with the life cycle will eventually enter a decline period. To solve the declining market demand caused by inventory overstocking, and large amount of capital investment in inventory, is a complicated equation. This paper establishes an economic production quantity (EPQ) model in the case of declining market demand and inflation. Assume that (1) the demand rate depends on a linear decline in time, (2) productivity depends on inventory levels, and (3) inflation are fixed. First order linear differential equations are used to construct corresponding mathematical models. The objective is to find the optimal production time to minimize the total average inventory cost within a production scheduling period. A numerical example is given to illustrate the proposed model. Finally, the optimal solution of main parameters sensitivity analysis. These conclusions can help managers to provide effective economic control over production strategies in the face of declining market demand and inflation in the product life cycle.