Inventory Model with Stock-level Dependent Demand Rate and Variable Holding Cost

Inventory models in which the demand rate depends on the inventory level are based on the common real-life observation that greater product availability tends to stimulate more sales.Previous models incorporating inventory-level dependent demand rate assume that the holding cost is constant or increasing function of the time spent in storage for the entire inventory cycle.This paper considers the inventory policy for an item with a stock-level dependent demand rate and a storage-time dependent holding cost.The holding cost per unit of the item per unit time is assumed to be a decreasing function of the time spent in storage.Time-dependent holding cost step functions are considered: Procedures are developed to determine the optimal order quantity and the optimal cycle time.