Inventory Model With Variable Holding Cost To Accomodate Planned Shortage (Study Case at CV. Yopan Ceramics)

Abstract

Inventory has become the biggest problem and needs to get extra attention. The inventory problem is associated with products which are stored in the storage for longer term and the higher cost needed to maintain it. In the real problem, the storage cost/holding cost is variable dependent to storage time used and to be increasing function of the time spent in the storage. Two types of variable holding cost are retroactive holding cost and incremental holding cost. Those type created with the purpose of determining optimal quantity ,cycle time, andminimum inventory cost which includes of demand, order cost, demand elasticity to inventory, and holding cost. Based on common real-life condition that sometimes the demand is greater than the inventory level. This condition caused the inventory shortage and anticipated by doing backorder before zero stock inventory in order to meet customer satisfaction. This paper presents the inventory model with variable holding cost using a simple algorithm to determine optimal solution which includes minimizing total inventoy cost and also to accomodate planned shortage to determine the shortage cost which includes backorder cost and administrative backorder cost. Keywords: variable holding cost, shortage, optimum solution, backorder, total inventory cost