Effect of deterioration on two-warehouse inventory model with imperfect quality

The formulation of inventory models is often done with the presumption that all items produced are of perfect quality in nature. However, in real‐life scenarios, the lot that arrives in inventory includes a fraction of imperfect quality items due to faulty production or mishandling of goods. It is also a misconception that the goods preserve their characteristics during their presence in the inventory. Thus, these assumptions need to be rectified in the planning/preparation of inventory models. In order to reduce the losses due to deterioration, at times, the retailer is forced to rent other warehouses (RW) with better preserving facilities, owing to the lack of facilities in his own warehouse (OW). The retailer may also rent warehouses voluntarily to store excessive goods that have been obtained at a discounted price or in order to avoid inflation rates. The present research paper is, thus, an attempt to incorporate the aforementioned concepts to develop a new inventory model with two warehouses: for goods that have a fraction of imperfect quality items and those that are deteriorating in nature. The study also states the developed mathematical model along with the solution procedure. Further, the sensitivity analysis of the optimal solution with respect to key parameters of the inventory system has also been performed to develop the managerial insights.