Hindawi Publishing Corporation

Advances in Operations Research

Volume 2010, Article ID 146042, 26 pages
doi:10.1155/2010/146042

Research Article
A Production-Inventory Model for
a Deteriorating Item Incorporating Learning
Effect Using Genetic Algorithm

Debasis Das,1 Arindam Roy,2 and Samarjit Kar1

1
Department of Mathematics, National Institute of Technology, Durgapur, West Bengal 713209, India
2
Department of Computer Science, Prabhat Kumar College, Contai, Purba- Medinipur,
West Bengal 721401, India

Correspondence should be addressed to Samarjit Kar, kar s [email protected]

Received 20 November 2009; Revised 3 June 2010; Accepted 5 July 2010

Academic Editor: Frédéric Semet

Copyright q 2010 Debasis Das et al. This is an open access article distributed under the Creative
Commons Attribution License, which permits unrestricted use, distribution, and reproduction in
any medium, provided the original work is properly cited.

Demand for a seasonal product persists for a fixed period of time. Normally the “finite time
horizon inventory control problems” are formulated for this type of demands. In reality, it is
difficult to predict the end of a season precisely. It is thus represented as an uncertain variable
and known as random planning horizon. In this paper, we present a production-inventory model
for deteriorating items in an imprecise environment characterised by inflation and timed value of
money and considering a constant demand. It is assumed that the time horizon of the business
period is random in nature and follows exponential distribution with a known mean. Here, we
considered the resultant effect of inflation and time value of money as both crisp and fuzzy.
For crisp inflation effect, the total expected profit from the planning horizon is maximized using
genetic algorithm GA to derive optimal decisions. This GA is developed using Roulette wheel
selection, arithmetic crossover, and random mutation. On the other hand when the inflation effect
is fuzzy, we can expect the profit to be fuzzy, too! As for the fuzzy objective, the optimistic
or pessimistic return of the expected total profit is obtained using, respectively, a necessity or
possibility measure of the fuzzy event. The GA we have developed uses fuzzy simulation to
maximize the optimistic/pessimistic return in getting an optimal decision. We have provided some
numerical examples and some sensitivity analyses to illustrate the model.

1. Introduction
Existing theories of inventory control implicitly assumed that lifetime of the product is
infinite and models are developed under finite or infinite planning horizon such as that of
Bartmann and Beckmann 1, Hadley and Whitin 2, Roy et al. 3, and Roy et al. 4. In
reality, however, products rarely have an infinite lifetime, and there are several reasons for
this. Change in product specifications and design may lead to a newer version of the product.
2 Advances in Operations Research

Sometimes, due to rapid development of technology cf. Gurnani 5, a product may be
abandoned, or even be substituted by another product. On the other hand, assuming a finite
planning horizon is not appropriate, for example, for a seasonal product, though planning
horizon is normally assumed as finite and crisp, it fluctuates in every year depending upon
the rate of production, environmental effects, and so forth. Hence, it is better to estimate this
horizon as having a fuzzy or stochastic nature. Moon and Yun 6 developed an Economic
Ordered Quantity EOQ model in a random planning horizon. Moon and Lee 7 further
developed an EOQ model taking account of inflation and time discounting, with random
product life cycles. Recently, Roy et al. 8 and Roy et al. 9, developed inventory models
with stock-dependent demand over a random planning horizon under imprecise inflation
and finite discounting. Yet, till now, none has developed an Economic Production Quantity
EPQ model, which incorporates the lifetime of a product as a random variable.
Production cost of a manufacturing system depends upon the combination of different
production factors. These factors are a raw materials, b technical knowledge, c
production procedure, d firm size, e quality of product and so forth, Normally, the cost
of raw materials is imprecise in nature. So far, cost of technical knowledge, that is, labor
cost, has been usually assumed to be constant. However, because the firms and employees
perform the same task repeatedly, they learn how to repeatedly provide a standard level of
performance. Therefore, processing cost per unit product decreases in every cycle. Similarly
part of the ordering cost may also decrease in every cycle. In the inventory control literature,
this phenomenon is known as the learning effect. Although different types of learning effects
in various areas have been studied cf. Chiu and Chen 10, Kuo and Yang 11, Alamri and
Balkhi 12, etc., it has rarely been studied in the context of inventory control problems.
Several studies have examined the effect of inflation on inventory policy. Buzacott 13
first developed an approach on modelling inflation-assuming constant inflation rate subject
to different types of pricing policies. Misra 14 proposed an inflation model for the EOQ,
in which the time value of money and different inflation rates were considered. Brahmbhatt
15 also developed an EOQ model under a variable inflation rate and marked-up prices.
Later, Gupta and Vrat 16 developed a multi-item inventory model for a variable inflation
rate. Though a considerable number of researches cf. Padmanabhan and Vrat 17, Hariga
and Ben-Daya 18, Chen 19, Dey et al. 20, etc. have been done in this area, none has
considered the imprecise inflationary effect on EPQ model, especially when the lifetime of
the product is random.
In dealing with these shortcomings above, this paper shows an EPQ model of a
deteriorating item with a random planning horizon, that is, the lifetime of the product is
assumed as random in nature and it follows an exponential distribution with a known mean.
Unit production cost decreases in each production cycle due to learning effects of the workers
on production. Similarly, setup cost in each cycle is partly constant and partly decreasing in
each cycle due to learning effects of the employees. The model is formulated to maximize the
expected profit from the whole planning horizon and is solved using genetic algorithm GA.
It is illustrated with some numerical data, and some sensitivity analyses on expected profit
function are so presented.

2. Assumptions and Notations

In this paper, the mathematical model is developed on the basis of the following assumptions
and notations.
Advances in Operations Research 3

Assumptions
1 Demand rate is known and constant.
2 Time horizon a random variable is finite.
3 Time horizon accommodates first N cycles and ends during N  1 cycles.
4 Setup time is negligible.
5 Production rate is known and constant.
6 Shortages are not allowed.
7 A constant fraction of on-hand inventory gets deteriorated per unit time.
8 Lead time is zero.
9 Production cost and setup cost decrease due to the learning in setups and
improvement in quality.

Notations
The notations used in this paper are listed below.
qt: on hand inventory of a cycle at time t, j − 1T ≤ t ≤ jT j 1, 2, . . . , N.
t1 : production period in each cycle.
P : Production rate in each cycle.
D: demand rate in each cycle.
C1 : holding cost per unit item per unit time.
j
C3 C3  C3 e−βj : is setup cost in jthj 1, 2, . . . , N cycle, β > 0 β is the learning
coefficient associated with setup cost.
p0 e−γj : production cost in the jthj 1, 2, . . . , N cycle, p0 , γ > 0 γ is the learning
coefficient associated with production cost.
m0 p0 e−γj : selling price in the jthj 1, 2, . . . , N cycle, p0 , γ > 0, m0 > 1.
N: number of fully accommodated cycles to be made during the prescribed time
horizon.
T : duration of a complete cycle.
i: inflation rate.
r: discount rate.
R: r-i, may be crisp or fuzzy.
P N, T : total profit after completing N fully accommodated cycles.
H: total time horizon a random variable and h is the real time horizon.
m1 p0 e−γN1 : reduced selling price for the inventory items in the last cycle at the
end of time horizon, p0 , γ > 0, m1 < 1.
θ: deterioration rate of the produced item.
E{P N, T }: expected total profit from N complete cycles.
E{T PL T }: expected total profit from the last cycle.
E{T P T }: expected total profit from the planning horizon.
4 Advances in Operations Research

qt

0 t1 T T  t1 2T N − 1T NT h NT  t1
a
qt

0 t1 T T  t1 2T N − 1T NT NT  t1 h
b

Figure 1: a. Inventory level when NT < h < NT  t1 . b Inventory level when NT  t1 < h < N  1T .

3. Mathematical Formulation
In this section, we formulate a production-inventory model for deteriorating items under
inflation over a random planning horizon incorporating learning effect. Here we assume that
there are N full cycles during the real time horizon h and the planning horizon ends within
the N  1th cycle, that is, within the time t NT and t N  1T . At the beginning of every
jth j 1, 2, . . . N 1 cycle production starts at t j −1T and continues up to t j −1T t1 ,
inventory gradually increases after meeting the demand due to production cf. Figures 1a
and 1b. Production thus stops at t j − 1T  t1 , and the inventory falls to zero level at the
end of the cycle time t jT , due to deterioration and consumption. This cycle repeats again
and again. For the last cycle some amount may be left after the end of planning horizon. This
amount is sold at a reduced price in a lot.
Here, it is assumed that the planning horizon H is a random variable and follows
exponential distribution with probability density function p.d.f as
⎧
⎨λe−λh , h ≥ 0,
fh 3.1
⎩0, otherwise.

3.1. Formulation for N Full Cycles

The differential equations describing the inventory level qt in the interval j − 1T ≤ t ≤
jT 1 ≤ j ≤ N, j 1, 2, . . . , N are given by
⎧    
dqt ⎨P − D − θqt, j − 1 T ≤ t ≤ j − 1 T  t1 ,
  3.2
dt ⎩−D − θqt, j − 1 T  t1 ≤ t ≤ jT,
Advances in Operations Research 5

where P > 0, D > 0, θ > 0, and 0 < t1 < T , subject to the conditions that qt 0 at t j − 1T
and qt 0 at t jT .
The solutions of the differential equations 3.2 are given by

⎧
⎪ P − D    
⎪
⎨ 1 − eθ{j−1T −t} , j − 1 T ≤ t ≤ j − 1 T  t1 ,
θ
qt 3.3
⎪
⎪ D  θjT −t  
⎩ e −1 , j − 1 T  t1 ≤ t ≤ jT.
θ

Now at t j-1T  t1 , from 3.3, we get

P −D D θT −t1 
1 − e−θt1 e −1
θ θ
 3.4
1 D θT
⇒ t1 ln 1  e −1 .
θ P

3.2. Total Expected Profit from N Full Cycles

From the symmetry of every full cycle, present value of total expected profit from N full
cycles, E{P N, T }, is given by

E{P N, T } ESRN − EPCN − EHCN − ETOCN. 3.5

where ESRN, EPCN, EHCN, and ETOCN are present value of expected total sales revenue,
present value of expected total production cost, present value of expected holding cost, and
present value of expected total ordering cost, respectively, from N full cycles, and their
expressions are derived in Appendix A.1 see A.13, A.7, A.4, A.10, resp..

3.3. Formulation for Last Cycle

Duration of the last cycle is NT, h, where h is the real time horizon corresponding to the
random time horizon H.
Here two different cases may arise depending upon the cycle length.

Case 1. NT < h ≤ NT  t1 .

Case 2. NT  t1 < h ≤ N  1T .

The differential equation describing the inventory level qt in the interval NT < t ≤ h
are given by

⎧
dqt ⎨P − D − θqt, NT ≤ t ≤ NT  t1 ,
3.6
dt ⎩−D − θqt, NT  t1 ≤ t ≤ N  1T.
6 Advances in Operations Research

subject to the conditions that

qNT  0, q{N  1T } 0. 3.7

The solutions of the differential equations in 3.6 are given by

⎧
⎪ P − D
⎨ 1 − eθNT −t , NT ≤ t ≤ NT  t1 ,
qt θ 3.8
⎩ D eθ{N1T −t} − 1 , NT  t1 ≤ t ≤ N  1T.
⎪
θ

3.4. Expected Total Profit from Last Cycle

Present value of expected total profit from last cycle is given by

E{T PL T } ESRL  ERSPL − EHCL − EPCL − EOCL . 3.9

where ESRL , ERSPL , EHCL , EPCL ,and EOCL are present value of expected sales revenue,
present value of expected reduced selling price, present value of expected holding cost,
present value of expected production cost, present value of expected ordering cost,
respectively, from the last cycle, and their expressions are derived in Appendix A.2 see
A.24, A.26, A.20, A.23, and A.25, resp..

3.5. Total Expected Profit from the System

Now, total expected profit from the complete time horizon is given by

E{T P T } E{P N, T }  E{T PL T }. 3.10

4. Problem Formulation
4.1. Stochastic Model (Model-1)
When the resultant effect of inflation and discounting R is crisp in nature, then our problem
is to determine T to

Max ET P ,
4.1
subject to T ≥ 0.

4.2. Fuzzy Stochastic Model (Model-2)

In the real world, resultant effect of inflation and time value of money R is imprecise, that is,
vaguely defined in some situations. So we take R as fuzzy number, denoted by R.  Then, due to

this assumption, our objective function ET P  becomes ET P . Since optimization of a fuzzy
Advances in Operations Research 7


objective is not well defined, so instead of ET P  one can optimize its equivalent optimistic
or pessimistic return of the objective as proposed by M. K. Maiti and M. Maiti 21. Using this
method the problem can be reduced to an equivalent crisp problem as discussed below.
If A and B are two fuzzy subsets of real numbers R with membership functions μ 
A
and μB , respectively, then taking degree of uncertainty as the semantics of fuzzy number,
according to Liu and Iwamura 22, Dubois and Prade 23, 24, and Zimmermann 25,
     
  B
Pos A sup min μA x, μB y , x, y ∈ R, x  y , 4.2

where the abbreviation Pos represent possibility and  is any one of the relations >, <, , ≤, ≥.
On the other hand necessity measure of an event A   B is a dual of possibility measure.
The grade of necessity of an event is the grade of impossibility of the opposite event and is
defined as
  
  B
Nes A 1 − Pos A  B , 4.3

  B represents complement
where the abbreviation Nes represents necessity measure and A
 
of the event A  B.
So for the fuzzy stochastic model one can maximize the crisp variable z such that
necessity/possibility measure of the event {ETP  > z} exceeds some predefined level
according to decision maker in pessimistic/optimistic sense. Accordingly the problem
reduces to the following two models.

Model-2a

When the decision maker prefers to optimize the optimistic equivalent of ET P , the problem
reduces to determine T to

Maximize z
   4.4

subjecte to pos E T P ≥ z ≥ α1 ,

where α1 is confidence level.

Model-2b
On the other hand when the decision maker desires to optimize the pessimistic equivalent of

ET P , the problem is reduced to determine T to

Maximize z
  
subjectto, 
nes E T P ≥ z ≥ α2 4.5
  
that is, 
pos E T P ≤ z < 1 − α2 ,

where α2 is confidence level.

8 Advances in Operations Research

5. Solution Methodology
To solve the stochastic model model-1, genetic algorithm GA and simulated annealing
SA are used. The basic technique to deal with problem 4.4 or 4.5 is to convert the
possibility/necessity constraint to its deterministic equivalent. However, the procedure is
usually very hard and successful in some particular cases cf. M. K. Maiti and M. Maiti 21.
Following Liu and Iwamura 22 and M. K. Maiti and M. Maiti 21, here two simulation
algorithms are proposed to determine z in 4.4 and 4.5, respectively, for a feasible T .

Algorithm 1. Algorithm to determine a feasible T to evaluate z for the problem4.4

To determine z for a feasible T , roughly find a point R0 from fuzzy number R,  which
approximately minimizes z. Let this value be z0 and set z z0 For simplicity one can take
z0 0. Then R0 is randomly generated in α1 -cut set of R  and let z0 value of ET P  for
R R0 and if z < z0 replace z with z0 . This step is repeated a finite number of times and final
value is taken as the value of z. This phenomenon is used to develop the algorithm.

1 Set z z0 .

2 Generate R0 uniformly from the α1 cut set of fuzzy number R.
3 Set z0 value of ET P  for R R0 .
4 If z < z0 then set z z0 .
5 Repeat steps 2, 3 and 4, N1 times, where N1 is a sufficiently large positive integer.
6 Return z.
7 End algorithm.

Algorithm 2. Algorithm to determine a feasible T to evaluate z for the problem 4.5:

We know that nes{ET P  ≥ z} ≥ α2 ⇒ pos{ET  P  < z} ≤ 1 − α2 . Now roughly find

a point R0 from fuzzy number R, which approximately minimizes ET P . Let this value be
z0 For simplicity one can take z0 0 also and ε be a positive number. Set z z0 − ε and if
pos{ET P  < z} ≤ 1 − α2 then increase z with ε. Again check pos{ET P  < z} ≤ 1 − α2 and
it continues until pos{ET P  < z} > 1 − α2 . At this stage decrease value of ε and again try to
improve z. When ε becomes sufficiently small then we stop and final value of z is taken as the
value of z. Using this criterion, required algorithm is developed as below. In the algorithm
the variable F0 is used to store initial assumed value of z and F is used to store value of z in
each iteration.

1 Set z z0 − ε, F z0 − ε, F0 z0 − ε, tol 0.0001.


2 Generate R0 uniformly from the 1 − α2 cut set of fuzzy number R.
3 Set z0 value of ET P  for R R0 .
4 If z0 < z.
5 Then go to step 11.
6 End If
7 Repeat step-2 to step-6 N2 times.
8 Set F z.
9 Set z z  ε.
Advances in Operations Research 9

10 Go to step-2.
11 If z F0  // In this case optimum value of z < z0 − ε
12 Set z F0 − ε, F F − ε, F0 F0 − ε.
13 Go to step-2
14 End If
15 If ε < tol
16 Go to step-21
17 End If
18 ε ε/10
19 z Fε
20 Go to step-2.
21 Output F.
22 End algorithm.

So for a feasible value of T , we determine z using the above algorithms, and to

optimize z we use GA. GA used to solve model-1 is presented below. When fuzzy simulation
algorithm is used to determine z in the algorithm, this GA is named fuzzy simulation-based
genetic algorithm FSGA. This is used to determine fuzzy objective function values.

5.1. Genetic Algorithm (GA)/Fuzzy Simulation-Based

Genetic Algorithm (FSGA)
Genetic Algorithm is a class of adaptive search technique based on the principle of population
genetics. In natural genesis. we know that chromosomes are the main carriers of the
hereditary information from parents to offsprings and that genes, which carry hereditary
factors, are lined up in chromosomes. At the time of reproduction, crossover and mutation
take place among the chromosomes of parents. In this way, hereditary factors of parents
are mixed up and carried over to their offsprings. Darwinian principle states that only the
fittest animals can survive in nature. So a pair of the fittest parents normally reproduce better
offspring.
The above- mentioned phenomenon is followed to create a genetic algorithm for
an optimization problem. Here potential solutions of the problem are analogous with the
chromosomes and chromosome of better offspring with the better solution of the problem.
Crossover and mutation are performed among a set of potential solutions, and a new
set of solutions are obtained. It continues until terminating conditions are encountered.
Michalewicz 26 proposed a genetic algorithm named the Contractive Mapping Genetic
Algorithm CMGA and proved the asymptotic convergence of the algorithm by the Banach
fixed-point theorem. In CMGA, movement from an old population to a new population
takes place only when the average fitness of a new population is better than the old one.
This algorithm is modified with the help of a fuzzy simulation process to solve the fuzzy
stochastic models of this paper. The algorithm is named FSGA, and this is presented below.
In the algorithm, pc , pm are probabilities of the crossover and the probability of mutation,
respectively, I is the iteration counter, and P I is the population of potential solutions for
iteration I. The P I function initializes the population P I at the time of initialization. The
10 Advances in Operations Research

P I function evaluates the fitness of each member of P I, and at this stage an objective
function value due to each solution is evaluated via the fuzzy simulation process using
algorithm 1 or algorithm 2. In case of stochastic model model-1 objective function is
evaluated directly without using simulation algorithms. So in that case this GA is named
ordinary GA. M is iteration counter in each generation to improve P I, and M0 is upper
limit of M.

5.2. GA/FSGA Algorithm

1 Set I 0, M 0, M0 50.
2 Initialize pc , pm .
3 Initialize P I and let N  be its size.
4 Evaluate P I.
5 While M < M0 
6 Select N  solutions from P I for mating pool using roulette-wheel selection
process Michalewicz 26. Let this set be P1 I.
7 Select solutions from P1 I for crossover depending on pc .
8 Perform crossover on selected solutions to obtain population P1 I.
9 Select solutions from P1 I for mutation depending on pm .
10 Perform mutation on selected solutions to obtain new population P I  1.
11 Evaluate P I  1.
12 Set M M  1.
13 If average fitness of P I  1 > average fitness of P I then
14 Set I I  1.
15 Set M 0.
16 End If.
17 End While.
18 Output: Best solution of P I.
19 End algorithm.

5.3. GA/FSGA Procedures

(a) Representation
An “n dimensional real vector” X x1 , x2 , . . . , xn  is used to represent a solution, where x1 ,
x2 ,. . ., xn represent n decision variables of the problem.

(b) Initialization
N  such solutions X1 , X2 , X3 ,. . ., XN  are randomly generated by random number generator.
This solution set is taken as initial population P I . Here we take N  50, pc 0.3, pm 0.2,
and I 1. These parametric values are assumed as these giving better convergence of the
algorithm for the model.
Advances in Operations Research 11

(c) Fitness value

Value of the objective function due to the solution X is taken as fitness of X. Let it be
fX. Objective function is evaluated via fuzzy simulation process using Algorithm 1 or
Algorithm 2 for model-2.

(d) Selection Process for Mating Pool

The following steps are followed for this purpose.
N 
i Find total fitness of the population F i 1 fXi .

ii Calculate the probability of selection pi of each solution Xi by the formula pi

fXi /F.

iii Calculate the cumulative probability qi for each solution Xi by the formula qi
i
j 1 pj .

iv Generate a random number “r” from the range 0, 1.

v If r < q1 , then select X1 : otherwise select Xi 2 ≤ i ≤ N, where qi−1 ≤ r ≤ qi .

vi Repeat step iv and v N  times to select N  solutions from old population. Clearly
one solution may be selected more than once.

vii Selected solution set is denoted by P1 I in the proposed GA/FSGA algorithm.

(c) Crossover
i Selection for Crossover. For each solution of P I generate a random number r from
the range 0, 1. If r < pc , then the solution is taken for crossover, where pc is the
probability of crossover.

ii Crossover Process. Crossover takes place on the selected solutions. For each pair of
coupled solutions Y1 , Y2 , a random number c is generated from the range 0, 1 and
their offsprings Y11 and Y21 are obtained by the formula

Y11 cY1  1 − cY2 , Y21 cY2  1 − cY1 . 5.1

(d) Mutation
i Selection for Mutation. For each solution of P I generate a random number r from
the range 0, 1. If r < pm , then the solution is taken for mutation, where pm is the
probability of mutation.

ii Mutation Process. To mutate a solution X x1 , x2 , . . . , xn  select a random integer

r in the range 1, n. Then replace xr by randomly generated value within the
boundary of the rth component of X.
12 Advances in Operations Research

Table 1

a Results for previous inventory model using GA

P D T E{T P T }
18 6.1209 271.3825
19 6.8253 350.9308
25 20 7.8419 438.9884
21 9.4299 537.9198
22 12.4726 651.8439
18 4.6108 147.5000
19 4.8058 206.5387
30 20 5.1075 269.6533
21 5.4725 337.2549
22 5.9059 409.9417

b Results for previous inventory model using SA

P D T E{T P T }
18 6.1208 270.0019
19 6.8251 348.9923
25 20 7.8418 436.1137
21 9.4297 534.8168
22 12.4723 648.1267
18 4.6106 146.4927
19 4.8055 205.4829
30 20 5.1072 268.2007
21 5.4723 335.3612
22 5.9057 407.4016

6. Numerical Illustration
6.1. Stochastic Model
The following numerical data are used to illustrate the model:
C3 $50, C3 $100, C1 $0.75, γ 0.05, β 0.5, λ 0.01, m0 1.8, m1 0.8, r
0.1, i 0.05, that is R 0.05, θ 0.1, p0 4 in appropriate units.
The fuzzy simulation-based GA designed in Section 5.3 is used to solve the model.
Here, the initial population size is 50, the probability of crossover is 0.3, and the probability
of mutation is 0.2. After 50 iterations the results obtain are shown in Table 1a. The
optimal values of T along with maximum expected total profit have been calculated for
different values of P and D, and results in GA are displayed in Table 1a. In order
to verify the feasibility of our proposed algorithm we combine a Simulated Annealing
Appendix B to solve the same numerical example. The result using SA is displayed in
Table 1b.
Advances in Operations Research 13

Graph of Table-2 for P 25 and D 20

470

460

450
E{T P T }

440

430

420

7
7.8 6
7.8

0.
5

01
0.
7.8

4
01
4

0.
7.8

3
01
0.
3

2
01
7.8

0.

1
01
T 2

0.
7.8

00
1 0.

9
7.8 00 λ
0.

8
00
8
0.
7.

7
00
6

Figure 2

Comparison of Results Using GA and SA

It is observed that in all cases genetic algorithm GA gives the better results than simulated
annealing SA. Also it is observed that in GA after fifty iterations we get the above results
but in SA we get the results by taking more than fifty iterations. Accordingly, the performance
of GA is acceptable.

Sensitivity Analysis
Sensitivity analysis is performed for stochastic model with respect to different λ, β, γ, and
R values for crisp inflation, and results are presented in Tables 2, 3, 4, and 5, and Figures
2, 3, 4, and 5, respectively, when other input values are the same. It is observed that profit
decreases and λ increases; when β increases, setup cost decreases and as such profit increases;
also when γ increases, unit production costp0  decreases, as well as selling price also
decreases, then profit decreases and profit decreases with R increases, which agrees with
reality.

6.2. Fuzzy Stochastic Model

Here the resultant inflationary effect is considered as a triangular fuzzy number, that is, R 

r − i 0.095, 0.1, 0.105 − 0.045, 0.05, 0.055 0.04, 0.05, 0.06, and all other data remain the
same as in stochastic model. The maximum optimistic/pessimistic return from expression
4.4, 4.5 has been calculated for different values of possibility and necessity, and results are
displayed in Table 6.
14 Advances in Operations Research

Graph of Table-3 for P 25 and D 20

480

460

E{T P T } 440

420

400

380

9.4
9.2 9

0.9
8.8 .6

0.8
8 4

0.7
8.

0.6
8.2

0.5
T
8

7.8 6

0.4
7. .4 β
0.3
0.2

7
0.1
2
7.

Figure 3

Table 2: Results due to different λ.

P D λ T E{T P T }
0.007 7.8644 461.9643
0.008 7.8534 454.0805
0.009 7.8419 446.4247
25 20 0.010 7.8326 438.9884
0.011 7.8283 431.7615
0.012 7.8177 424.7356
0.013 7.8093 417.9023
0.007 5.1075 282.9747
0.008 5.0977 278.4325
0.009 5.0816 273.9930
30 20 0.010 5.0799 269.6533
0.011 5.0786 265.4108
0.012 5.0769 261.2627
0.013 5.0758 257.2064
Advances in Operations Research 15

Graph of Table-4 for P 25 and D 20

520

500

E{T P T } 480

460

440

420

400

10
9.5

0.0
9

0.0

9
8.5

0.0

8
0.0

7
8

0.0
T

6
7.5

0.0

5
7
0.0

4
γ
0.0

6.5 3
0.0

2
1

Figure 4

Table 3: Results due to different β.

P D β T E{T P T }
0.2 9.3221 373.6849
0.3 8.5978 400.0143
0.4 8.1599 421.5221
25 20 0.5 7.8419 438.9884
0.6 7.5965 453.2203
0.7 7.4991 464.9283
0.8 7.4190 474.6389
0.2 5.8613 177.7192
0.3 5.4725 217.3894
0.4 5.2552 247.0687
30 20 0.5 5.1075 269.6533
0.6 4.9777 287.1854
0.7 4.9487 301.1210
0.8 4.9266 312.3360
16 Advances in Operations Research

Graph of Table-5 for P 25 and D 20

1000
900

E{T P T } 800

700
600
500

400
300

9.6 4
9. .2
9 9

0.0
8.8 .6

0.0

9
0.0
8 .4

8
8

0.0

7
2

0.0
8.

6
T
7.8 .6

0.0

5
7 0.0

4
4

R
7.2
7.

0.0

3
7 0.0

2
1

Figure 5

Table 4: Results due to different γ.

P D γ T E{T P T }
0.02 6.5440 507.8503
0.03 7.0265 482.7838
0.04 7.4443 459.9807
25 20 0.05 7.8419 438.9884
0.06 8.2027 419.4875
0.07 8.5465 401.2431
0.08 8.8531 384.0748
0.02 4.4246 356.9377
0.03 4.6891 324.7691
0.04 4.8916 295.9021
30 20 0.05 5.1075 269.6533
0.06 5.2846 245.5345
0.07 5.4725 223.2001
0.08 5.6490 202.3769
Advances in Operations Research 17

Table 5: Results due to different R.

P D R T E{T P T }

0.02 9.3424 880.0032

0.03 8.6392 671.2861
0.04 8.1599 534.9554
25 20 0.05 7.8419 438.9884
0.06 7.5965 367.8136
0.07 7.4190 312.9520
0.08 7.2623 269.3924
0.02 5.9199 525.9553
0.03 5.5683 412.8959
0.04 5.2846 330.8860
30 20 0.05 5.1075 269.6533
0.06 4.9877 222.4699
0.07 4.8058 185.1550
0.08 4.6982 154.9609

Table 6: Results due to possibility and necessity.

Possibility E{T P T } necessity E{T P T }

0.0 534.9553 0.0 438.9884

0.1 523.8795 0.1 430.9332
0.2 513.1811 0.2 423.1113
0.3 502.8303 0.3 415.5111
0.4 492.8215 0.4 408.1239
0.5 483.1319 0.5 400.9410
0.6 473.7467 0.6 393.9531
0.7 464.6526 0.7 387.1509
0.8 455.8359 0.8 380.5319
0.9 447.2855 0.9 374.0905
1.0 438.9884 1.0 367.8136

7. Conclusion
In this paper, for the first time an economic production quantity model for deteriorating items
has been considered under inflation and time discounting over a stochastic time horizon. Also
for the first time learning effect on production and setup cost is incorporated in an economic
production quantity model. The methodology presented here is quite general and provides
18 Advances in Operations Research

a valuable reference for decision makers in the production inventory system. To solve the
proposed highly nonlinear models, we have designed a fuzzy simulation based GA. The
algorithm has been tested using a numerical example. The results show that the algorithms
designed in the paper perform well. Finally, a future study will incorporate more realistic
assumptions in the proposed model, such as variable demand and production, allowing
shortages and so forth.

Appendices
A.
A.1. Calculation for Expected Sales Revenue for N Full Cycles
Present value of holding cost of the inventory for the jth 1 ≤ j ≤ N cycle, HCj , is given by

 j−1T t1  jT
HCj C1 qte−Rt dt  C1 qte−Rt dt
j−1T j−1T t1

C1 P − D −Rj−1T
e − e−R{j−1T t1 }
θR
C1 P − D −Rj−1T A.1
− e − e−R{j−1T t1 }−θt1
θθ  R
C1 D
 eθjT −θR{j−1T t1 } − e−RjT
θθ  R
C1 D −RjT
 e − e−R{j−1T t1 } .
θR
 
N
1 − e−NRT
−Rj−1T
Also, e . A.2
j 1 1 − e−RT

Total holding cost from N full cycles, HCN, is given by


N
HCN HCj
j 1

C1 P − D  C P − D 
1 − e−Rt1 − 1 − e−Rθt1
1
θR θθ  R
A.3
C1 D 
− 1 − eθRT −t1  e−RT
θθ  R
  
C1 D RT −t1  −RT 1 − e−NRT
 1−e e .
θR 1 − e−RT
Advances in Operations Research 19

So, the present value of expected holding cost from N complete cycles, EHCN, is given by

∞  N1T

EHCN HCN. fh dh
N 0 NT
    
C1 P − D 1 − e−Rt1 C1 P − D 1 − e−Rθt1
−
θR 1 − e−RT θθ  R 1 − e−RT
  A.4
C1 D 1 − eθRT −t1 
− e−RT
θθ  R 1 − e−RT
   
C1 D 1 − eRT −t1  −RT 1 − e−λT
 e 1− .
θR 1 − e−RT 1 − e−RλT

Present value of production cost for the jth 1 ≤ j ≤ N cycle, P Cj , is given by

 j−1T t1 
p0 e−γj · P
P Cj p0 e−γj · P e−Rt dt 1 − e−Rt1 e−Rj−1T . A.5
j−1T R

Present value of total production cost from N full cycles, PCN, is given by

 

N
p0  1 − e−NγRT 
PCN P Cj · P · eRT · 1 − e−Rt1 · e−γRT  · . A.6
j 1
R 1 − e−γRT 

Present value of expected total production cost from N full cycles, EPCN, is given by

∞  N1T

EPCN PCN · fh dh
N 0 NT
 A.7
p0  e−λT
· P · eRT · 1 − e−Rt1 · e−γRT  ·   .
R 1 − e−γRT λT 

j
Present value of ordering cost for the jth 1 ≤ j ≤ N cycle, C3 , is given by

j
 
C3 C3  C3 · e−βj · e−Rj−1T , C3 , C3 , β > 0. A.8

Present value of total ordering cost from N full cycles, TOCN, is given by

   

N
j 1 − e−NRT 1 − e−NβRT 
TOCN C3 C3  C3 ·e −β
· . A.9
j 1 1 − e−RT 1 − e−βRT 
20 Advances in Operations Research

Present value of expected total ordering cost from N full cycles, ETOCN, is given by

∞  N1T

ETOCN TOCN · fh dh
N 0 NT
A.10
C3 e−λT  −β e−λT
   C3 · e ·  .
1 − e−λRT 1 − e−βRT λT 

Present value of sales revenue for the jth 1 ≤ j ≤ N cycle, SRj , is given by

 jT
−γj
SRj m 0 · p0 · e D · e−Rt dt
j−1T
A.11
m0 · p0 · e−γj · D  −Rj−1T 
e − e−RjT .
R

Present value of total sales revenue from N full cycles, SRN, is given by

 

N
p0  1 − e−NγRT 
SRN SRj m0 · · D · eRT − 1 · e−γRT  · . A.12
j 1
R 1 − e−γRT 

Present value of expected total sales revenue from N full cycles, ESRN, is given by

∞  N1T

ESRN SRN · fh dh
N 0 NT
 A.13
p0  e−λT
m0 · · D · eRT − 1 · e−γRT  ·   .
R 1 − e−γRT λT 

A.2. Calculation for Expected Sales Revenue for Last Cycle

Case 1 NT < h ≤ NT  t1 . Present value of holding cost of the inventory for the last cycle is
given by

h
HCL1 C1 qte−Rt dt
NT
A.14
C1 P − D 1 −NRT  1  θNT −θh−Rh 
−Rh −NRT
e −e  e −e .
θ R θR
Advances in Operations Research 21

Present value of production cost is given by

h
−γN1
P CL1 p0 · e ·P e−Rt dt
NT
A.15
p0 · e−γN1 · P −RNT
e − e−Rh .
R

Present value of ordering cost is given by {C3 C3 · e−βN1 }e−NRT .

Present value of sales revenue is given by

h
SRL1 m0 · p0 · e−γN1 · D e−Rt dt
NT
A.16
−γN1
m 0 · p0 · e ·D
e−RNT − e−Rh .
R

Case 2 NT  t1 < h ≤ N  1T . Present value of holding cost of the inventory for the last
cycle is given by

 NT t1 h
HCL2 C1 qte−Rt dt  C1 qte−Rt dt
NT NT t1
 
C1 P − D 1  −NRT −RNT t1 
 eθNT 
−θRNT t1  −θRNT
 C1 D
e −e  e −e 
θ R θR θ

1   1 
× eθN1T e−θRNT t1  − e−θRh  e−Rh − e−RNT t1  .
θR R
A.17

Present value of production cost is given by

 NT t1
−γN1
P CL2 p0 · e ·P e−Rt dt
NT
A.18
−γN1
p0 · e ·P
e−RNT − e−RNT t1  .
R

Present value of ordering cost is given by {C3 C3 · e−βN1 } · e−NRT .

Present value of sales revenue is given by

 NT t1 h
−γN1 −Rt −γN1
SRL2 m 0 · p0 · e ·D e dt  m0 · p0 · e ·D e−Rt dt
NT NT t1
A.19
−γN1
m0 · p0 · e ·D
e−RNT − e−Rh .
R
22 Advances in Operations Research

Present value of expected holding cost for the last cycle is given by

∞  N1T

EHCL HCL · fhdh
N 0 NT
∞  NT t1
 ∞  N1T
 A.20
HCL1 · fhdh  HCL2 · fhdh
N 0 NT N 0 NT t1

EHCL1  EHCL2 ,

where

C1 P − D 1  λ  
EHCL1 1 − e−λt1 − 1 − e−λRt1
θ R RR  λ
λ  
 1 − e−θRλt1 A.21
θ  Rθ  R  λ
1  1
− 1 − e−λt1 ,
θR 1−e −λRT

C1 P − D 1 −Rt1  
EHCL2 e − 1 e−λT − e−λt1
θ R
1    1
 1 − e−θRt1 e−λT − e−λt1
θR 1−e −λRT

C1 D 1 
 e−λt1 − e−λT eθT −θRt1
θ θR
A.22
λeθT  
 e−θRλT − e−θRλt1
θ  Rθ  R  λ
λ  
− e−RλT − e−Rλt1
RR  λ
 
1 −λT 1
 e − e−λt1 e−Rt1 .
R 1 − e−λRT

Present value of expected production cost for the last cycle is given by

∞  N1T

EPCL P CL · fhdh
N 0 NT

∞  NT t1
 ∞  N1T

P CL1 · fhdh  P CL2 · fhdh
N 0 NT N 0 NT t1
   A.23
p0 · e−γ · P  1 λ e−Rλt1 − 1
1 − e−λt1 ·   
R 1−e −RT λT γ R  λ 1 − e−RT λT γ
 
p0 · e−γ · P   1
 1 − e−Rt1 · e−λt1 − e−λT ·   .
R 1− e−RT λT γ
Advances in Operations Research 23

Present value of expected sales revenue from the last cycle is given by

∞  N1T

ESRL SRL · fhdh
N 0 NT

∞  NT t1
 ∞  N1T

SRL1 · fhdh  SRL2 · fhdh
N 0 NT N 0 NT t1
 A.24
m0 · p0 · D −γ  1
·e · 1 − e−λT ·  
R 1 − e−RT λT γ

λ  1
−RλT
 e −1 ·   .
R  λ 1 − e−RT λT γ

Present value of expected ordering cost for the last cycle is given by

∞  N1T 
 
EOCL C3  C3 · e−βN1 · e−NRT fhdh
N 0 NT
    A.25
1 − e−λT 1 − e−λT
C3    C3 · e−β ·  .
1 − e−λRT 1 − e−βλT RT 

Present value of expected reduced selling price from the last cycle is given by


∞  N1T
ERSPL m1 p0 e−γN1 e−Rh qh · fhdh
N 0 NT


∞  NT t1
m1 p0 e−γ e−γN e−Rh qh · fhdh
N 0 NT A.26

∞  N1T
 m1 p0 e−γ e−γN e−Rh qh · fhdh
N 0 NT t1

ERSPL1  ERSPL2 ,

where

m1 p0 e−γ λP − D 1  
ERSPL1 1 − e−Rλt1
θ Rλ
A.27
1   1
−Rλθt1
− 1−e ,
Rθλ 1−e −γRT λT 

m1 p0 e−γ λD 1  
ERSPL2 e−Rλθt1 − e−RλθT eθT
θ Rλθ
A.28
1  −RλT  1
−Rλt1
 e −e .
Rλ 1−e −γRT λT 
24 Advances in Operations Research

B. Simulated Annealing
SA is a stochastic search algorithm developed by mimicking the physical process of
evolution of a solid in a heat bath to thermal equilibrium. In the early 1980s Kirkpatrick
et al. 27, 28 and independently Cerny 29 introduced the concept of annealing in
optimization.
Consider an ensemble of molecules at a high temperature, which are moving around
freely. Since physical systems tend towards lower energy states, the molecules are likely
to move to the positions that lower the energy of the ensemble as a whole, as the system
cools down. However molecules actually move to positions which increase the energy of the

system with a probability e−ΔE/T , where ΔE is the increase in the energy of the system and T 
is the current temperature. If the ensemble is allowed to cool down slowly, it will eventually
promote a regular crystal, which is the optimal state rather than flawed solid, the poor local
minima.
In function optimization, a similar process can be defined. This process can be
formulated as the problem of finding a solution, among a potentially very large number
of solutions, with minimum cost. By considering the cost function of the proposed system
as the free energy and the possible solutions as the physical states, a solution method was
introduced by Kirkpatrick in the field of optimization based on a simulation of the physical
annealing process. This method is called Simulated Annealing. The Simulated Annealing
algorithm to solve such problems is given below.

1 Start with some state, S.

2 T  T0

3 Repeat {

4 While not at equilibrium{

5 Perturb S to get a new state Sn

6 ΔE ESn -ES

7 If ΔE < 0

8 Replace S with Sn


9 Else with probability e−ΔE/T

10 Replace S with Sn

11 }

12 T  C ∗ T  /∗ 0<C< 1 ∗/

13 } Until frozen

In this algorithm, the state, S, becomes the state approximate solution of the problem
in question rather than the ensemble of molecules. Energy, E, corresponds to the quality of
S and is determined by a cost function used to assign a value to the state and temperature,
T  is a control parameter used to guide the process of finding a low cost state where T0 is the
initial value of T  and C 0 < C < 1 is a constant used to decrease the value of T  .
Advances in Operations Research 25

Procedures of SA Functions
a Representation. A “K-dimensional real vector” S s1 , s2 ,. . . sK  is used to represent
a solution, where s1 , s2 ,. . ., sK represent different decision variables of the problem
under optimization.

b Initialization. In this step an initial solution from the search space is generated.
Different components s1 , s2 ,. . ., sK are randomly generated from their bounds such
that constraints of the problem are satisfied. This solution is taken as initial state S
in the above algorithm.

c Perturbation Function. To find a neighbour solution of S s1 , s2 , . . . , sK , a random

integer r is selected in the range 1. . .K. Then sr is replaced by randomly generated
value within the boundary of the rth component of S or a random number r1
is generated between −0.25 and 0.25 using random number generator, and sr is
replaced by sr  r1 , so that S satisfies constraints of the problem. Final solution is
taken as neighbour solution of S.

d Energy Function. Value of the objective function f due to solution S, fS, is taken
as energy of S if the problem is of minimization type otherwise −fS is taken as
the energy function of the solution S.

e Cooling Schedule. Initial temperature T0 is taken according to different parameter
values of the energy function, and reducing factor for T  temperature, C is taken
as 0.999.

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