Determining optimal lot size for a two-warehouse system with deterioration and shortages using net present value

In this paper, we develop a deterministic inventory model for deteriorating items with two warehouses by minimizing the net present value of the total cost. Deterioration rates of items in the two warehouses may be different. In addition, we allow for shortages and complete backlogging. We then prove that the optimal replenishment policy not only exists but also is unique under some condition. Further, the result reveals that the reorder interval based on the average total cost, if it exists, must be longer than that derived using net present value. Finally, we use Yang’s H.L. Yang, European Journal of Operational Research 157 (2004) 344–356] numerical example to illustrate the model and conclude the paper with suggestions for possible future research.