Results in Control and Optimization 15 (2024) 100408

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Results in Control and Optimization

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A profit-cost ratio maximization approach for a manufacturing

inventory model having stock-dependent production rate and stock
and price-dependent demand rate
Musaraf Hossain, Manojit Das, Mostafijur Rahaman, Shariful Alam ∗
Department of Mathematics, Indian Institute of Engineering Science and Technology, Shibpur, Howrah, 711103, India

ARTICLE INFO ABSTRACT

Keywords: This paper discusses an optimal managerial approach regarding stock control in a manufacturing-
Production inventory inventory scenario. The selling price and inventory level in showrooms may impact customers’
Stock dependent production rate demand. The fall in selling price creates additional demand, while shown inventory also
Selling price-dependent demand
positively enhances demand. In this paper, demand is influenced by the selling price during
Stock-dependent demand
the productive phase and the displayed stock in idle time. The significance of selling price and
Profit cost ratio optimization
stock on profit goal may not be inherited from that of the demand function. The production rate
varies negatively against the inventory on hand. Instead of taking cost minimization or the profit
maximization objective, this paper executes an optimization approach on the profit-cost ratio
function, sharpening the manufacturer’s goal. The numerical solution and sensitivity analysis on
optimal outcomes succeed the analytical solution in Mathematica software. Numerical results
indicate that the profit-cost ratio rises with selling price, suppressing the negative impact of the
selling price on demand. Also, the profit-cost ratio shows a concave curve for the production
cycle, ensuring a global maximum for the objective function.

1. Introduction

Inventory management systems have received much attention recently for their contemporary perspective on decision-making
for lot-cycle-based businesses. The word ‘‘inventory’’ stands for stocks of items. It may remain in terms of finished, semi-finished
goods, or raw materials in economic bodies like manufacturers or retailers. The holding of such stocks incurs a variety of costs.
Again, the stock is a matter of necessity to make an uninterrupted flow to meet the consumers’ demand. Thus, inventory control
became a decision-making problem in the operation research study. Inventory must be controlled both for the manufacturing and
retail organization. Lot sizing modeling is one of the popular approaches to dealing with inventory control management. The
economic order quantity (EOQ) and economic production quantity (EPQ) models are crucial mathematical models portraying the
stock management scenarios in retail and production-related organizations. In an EOQ model, the lot size is optimized so that the
consumer’s demand can be fulfilled, and the retailer’s objective to minimizing the total average cost (or maximizing the total average
profit) can be materialized. Consumers’ demand is the most vital issue related to either type of lot size model. Old inventory models
considered demand to be constant and deterministic. But, the assumptions were far distant from the actual scenarios. Several factors
like selling price, displayed stocks, product promotions, the integrity of the retail supply, and other related policies significantly
impact the regulation of the customers’ demand. Sometimes the crisp phenomena cannot even describe such dependencies accurately.
In such cases, the modeling in stochastic, fuzzy, and interval environments fulfill the purposes. The production rate is another issue in

∗ Corresponding author.
E-mail address: salam@[Link] (S. Alam).

[Link]
Received 6 October 2023; Received in revised form 9 February 2024; Accepted 6 March 2024
Available online 15 March 2024
2666-7207/© 2024 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC license
([Link]
M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

economic production quantity models for manufacturing sectors. The production rates were also considered constant in the initial
research, which did not meet the natural urges. The production may rely on the on-hand inventory, demand pattern, etc. The
uncertainty regarding the inter-dependency is also genuine for the production inventory models. In this article, we develop an EPQ
model for the stock management policy of a manufacturing organization. We incorporate the following issues while developing the
EPQ models. First, the production rate is taken to be dependent on the on-hand stock level or inventory. To avoid unnecessary
stocks that result in penalties with costs rising, the production rate should be decreased as the on-hand inventory level increases.
Our model considers the negatively proportional linear dependence of the production rate and the on-hand inventory. Second, The
demand rate is assumed to be a function of the retail price and the stocks. The retail price has a negatively proportional influence
on the demand rate. Because the customer’s demand should be lowered as the retail price is hiked. We assume a scenario where
the sensitivity to pricing on the demand function is much more relevant in the active production phase. Thus, the demand rate
is considered as a negatively proportional linear function of the retail price in the productive phase. After the production cycle
ends with the highest inventory level, it may become a matter of great enthusiasm for the customers. The displayed stocks have a
positive impact on the demand rate. We assume the dependence of the demand rate on the shown inventory is exponential. Third,
the economic production quantity models often aim to minimize the total average cost or maximize the total average profit. They
are considered to be equivalent. However, the actual scenarios may not be straightforward. Sometimes, lowering costs may result
in reducing profit as well. Also, profit maximization may cause the cost to be maximized as well. Thus, maximizing the profit-cost
ratio will be an intelligent optimization policy for the manager. In this paper, we adopt the profit-cost ratio optimization approach
while analyzing the outcomes from the proposed model. The survey of the existing literature, study gaps, and contributions of this
present paper are given in the next section in detail.
The remaining of this article contains sections as follows: The literature review is described in Section 2, and Section 3 is about
the hypothesis and notations which are used to introduce the model. Section 4 describes and analyses the model mathematically.
Section 5 is about the analytical solution of the profit maximization model. In Section 6, numerical solutions and sensitivity analysis
are provided. The conclusion of the whole study is drawn in Section 7.

2. Literature review

Inventory control problems have a century-long history as [1] introduced the classical economic order quantity model, which
is the most simplified and pioneering model in the study of inventory control management. He considered demand and costs to be
constant and precise. The model is pioneering, but the assumptions were very much idealistic which differs from reality. Therefore,
his novel work was modified and extended later by numerous researchers throughout the decades. However, inventory control
problems gained much popularity in the first decade of this present century. Roy [2] included deterioration of the items in his model’s
hypotheses. He also substituted the constant demand and costs by retail price and time-dependent demand and cost respectively.
It was assumed that the rate of deterioration increased linearly with time. Tripathy and Mishra [3] considered Weibull distributed
time function to describe the rate of deterioration. Their model generalized the previous one as Weibull distributed deterioration
rate included the time-dependent and constant deterioration as particular cases. The demand, production rate, costs, and prices were
then varied and a potential research domain has emerged. In this context, Alfares and Ghaithan [4] published a fantastic review
article on inventory control policies with time-sensitive holding costs. Also, Bhunia and Shaikh [5] used the Weibull distributed
time function as a deterioration rate to describe an inventory optimization model [6]. Study examines a two-echelon imperfect
manufacturing system in the presence of the promotional efforts of a quality-sensitive retail setting with backlogs [7] designed a
deteriorating model with selling price and displayed stock-influenced demand pattern which addressed issues like inflation and
delayed payment impacting managerial decisions of stock optimization. Rahaman et al. [8] addressed the influences of memory
environment on an economic order quantity model with selling price-dependent demand. The combined influence of memory and
learning on the decision-making of an inventory model was traced by another study of Rahaman et al. [9]. Ghoreishi et al. [10]
considered the impacts of the retail price and inflation in demand function while manifesting the cumulative influences of the return
policy and delay in payment which is offered to the consumers. Taleizadeh et al. [11] discussed scheduling policies involved in a
supply chain scenario with the conclusion that the optimal lot size and retail price can be obtained utilizing the Stackelberg game
optimization design. Mishra et al. [12] furthermore assumed that demand is a function of both stock and selling price per unit of
commodities while discussing an economic order quantity model with shortage scenarios of partial and fully backlogged types. They
discussed the influence of preservation technology preventing deterioration on their proposed model [13]. Consider interval-valued
production rate and interval-valued credit link demand rate with interval-valued deterioration and preservation technology. Panda
et al. [14] introduced a demand function that depends on stock, selling price, and advertisement frequency to manifest the impacts
of trade credit policies in two different warehouses. While the mentioned economic models addressed linear stock dependency of
demand, inventory management cost, etc. Cárdenas-Barrón et al. [15] introduced a trade credit policy for an order quantity model
with a non-linear stock dependency of the carrying cost [16]. Examined how a carbon tax law would affect the best course of action
for an imperfect production inventory model in interval environments where customers’ demand is contingent on selling price
and production rate sensitive production cost. Alfares and Ghaithan [17] remained the retail price and stock in demand function.
Instead, they incorporate time and manufacturing costs in the function depicting holding cost per unit items. The above-mentioned
models describe that the demand, production, costs, and revenues are influenced by stock, time, retail price, advertisement cost,
deterioration, and preservation technology. The present decade is a time of awareness of environmental and green issues. Akhtar
et al. [18] designed a green production inventory model where they incorporated the influence of green level in demand as well as
in the cost function. The green level in demand function was also considered by Hakim et al. [19]. Ruidas et al. [20] recommended

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Table 1
Comparison with existing inventory models.
Authors EPQ/EOQ Demand rate Production rate Maximize profit/cost Holding cost pattern
Pando et al. [31] EOQ Stock dependent NA No Stock dependent
Pando et al. [28] EOQ Stock dependent NA Yes Non-linear
Pando et al. [32] EOQ Stock dependent NA No Non-linear
Rahaman et al. [30] EPQ Stock and price dependent Linear function of stock No Constant
Alfares [33] EOQ Stock dependent NA No Time dependent
Cárdenas-Barrón et al. [15] EOQ Stock dependent NA No time dependent
Pando et al. [29] EOQ Stock-dependent NA Yes Non-linear
Teng and Chang [34] EPQ Stock-dependent Constant No Constant
Wu et al. [35] EOQ Stock-dependent NA No Constant
Yang [36] EOQ Stok-dependent NA No Non-linear
Lee and Dye [37] EOQ Stock-dependent NA No Constant
Choudhury et al. [38] EOQ Stock dependent NA No Linear time dependent
Shah et al. [39] EPQ Stock and price dependent Constant No Constant
Khan et al. [40] EOQ Stock-dependent NA No Constant
Shaikh et al. [41] EOQ Price and stock dependent NA No Constant
Shaikh et al. [42] EOQ Stock-dependent NA No Constant
Bardhan et al. [43] EOQ Stock-dependent NA No Constant
Ruidas et al. [44] EPQ Stock and price dependent Proportional to demand No Constant
Halim et al. [45] EPQ Stock and price dependent Stock dependent No Constant
This study EPQ Stock and price dependent Linear function of stock Yes Constant

pricing strategies for advanced products against demand interruption as well as price alteration in an interval-valued manufacturing
inventory system. He and Huang [21] discussed the joint impacts of the costs for preservation technology and retail on demand for
an inventory model of deteriorating products. An inventory management model with deterioration and inventory-impacted demand
was also investigated by Ghiami et al. [22] where they addressed capacity constraint and partial backlogging. The stock dependency
of demand rate and nonlinear carrying costs for the model of deteriorating inventory was addressed by Chang [23]. There are several
inventory models (see, [24–27]) which focus on the maximization of the revenue earned on the investments.

2.1. Research gap and objective

Table 1 summarizes the contributions of contemporary research in recent times with the contribution of this paper. In the existing
literature, we find some lacunae that are tried to be minimized in this paper. First, most of the existing literature considered the
average profit or the average cost function as the objective function. It is obvious that the producer can gain maximum surplus by
either enhancing earned revenue or reducing costs. However, the two approaches may not be equivalent. If there is no obstacle to
cost, the profit can be enhanced by making the investment large. But, sometimes, the retail organization may be constrained by
budget limits. In that case, the profit-cost ratio will be an objective function instead of a profit or cost function. We noticed a few
articles (except, Pando et al. [28,29]) bothering the ratio of profit and cost in inventory scenarios. We have adapted their approach
to fix the objective of the proposed model.
Second, the production of the manufacturing body with a small logistics capacity must be influenced by on-hand stock. Oversized
stock may lead the system to incur additional carrying costs. So, production is negatively proportional to the inventory level
(see [30]). In this paper, we have assumed the same production function with a profit-cost ratio maximization objective.
Third, the selling price is the most significant demand-controlling factor. The demand rate can be enhanced by reducing the
selling price per unit product and availing of displayed inventory in showrooms (see [30]). However, the dependency of demand
on price and stock may not always be linear. Also, it is not necessary that the price and stock sensitivity of the demand rate
remain the same in the production on and production off periods. When the inventory goes through an active production cycle,
the inventory level cannot be diminished. Therefore, we neglected the influence of stock on demand and assumed price-dependent
demand during the production cycle in our proposed model. When production is stopped, the inventory level decreases gradually,
and the declination of stock may influence the demand pattern. So, the impact of inventory levels may be the main demand-control
issue in the non-productive cycle. Therefore, we take two different demand patterns for the production and non-production cycles.
In this paper, we have assumed that demand is price- and stock-sensitive, such that demand is a linear function of retail price
during production on period and a non-linear function of on-hand inventory during production off period. Also, we have assumed
that the rate of production is a linear function of stock. We consider the profit-cost ratio as the objective function to be maximized
to trace the maximum possible profit with respect to the costs. We have established the criteria for the analytical solution and also
presented the numerical solutions.

3. Notations and hypothesis

This section consists of two subsections to establish the foundation of the proposed model with presumptions and notations.

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Table 2
The variables and parameters with their meanings and units.
Symbol Explanation Unit
𝑝 Selling price per unit $
𝑐ℎ Cost for continuing stock per unit $
𝑐𝑠 Setup cost per complete cycle $
𝑐𝑝 Production cost per unit $
𝑇 Total discourse decision Month
𝑡1 Total production time Month
𝐼(𝑡) Level of inventory at time t unit
𝑄 Maximum level of inventory unit
𝐾 Rate of manufacturing commodities unit
𝐷 Rate of Consumption unit
𝜌 Scale parameter of the demand rate function
𝜇 Demand elasticity concerning stock level (0 ≤ 𝜇 < 1)
𝑇 𝐴𝑃 Total average profit $
𝑇 𝐴𝐶 Total average cost $
𝑇𝑃 Total profit $
𝑇𝐶 Total cost $
Decision variables
𝑇 Total discourse of decision Month
𝑡1 Total span of production Month
Objective function
𝑇 𝐴𝑃 ∕𝑇 𝐴𝐶 Total average profit/cost ratio

3.1. Notations

The symbols, notations of parameters and variables, and their meanings are described in Table 2.

3.2. Hypothesis

The mathematical foundation of the joint manufacturing and lot-scheduling strategy is developed on the below-mentioned
hypothesis.

(i) The production rate may depend on the hand stock of produced items. The production rate should be decreased as the on-hand
inventory size becomes larger. Therefore, we assume production rate 𝐾(𝑡) as follows: 𝐾(𝑡) = 𝑎 − 𝑏𝐼(𝑡), where 𝑎 and , 𝑏 are two
positive, while I(t) represents the stock. Also, 𝑎 is called production rate potential, and 𝑏 is the coefficient of variability of
the stock.
(ii) The rate of consumption is the most crucial issue involved in an inventory management [Link] the inventory goes
through an active production cycle, the inventory level cannot be diminished. Therefore, we neglected the influences of stock
on demand and assumed the price-dependent demand during the production cycle. When production is stopped, the inventory
level decreases gradually, and the declination of stock may influence the demand pattern. So, the impact of inventory level
may be the main demand-controlling issue in the non-productive cycle. Therefore, we take two different demand patterns for
the production and non-production cycle. The factor that influences the demand pattern most is the selling price. Low selling
price affects the demand rate by making it high. Therefore, the dependency of demand rate 𝐷(𝑝) on retail price in an active
manufacturing cycle is taken as follows: 𝐷(𝑝) = 𝑐 − 𝑑𝑝, in which 𝑐 > 0 is called demand potential and 𝑑 > 0 is a constant
measuring variance of demand according to price.
For the non-production period, we consider demands on the stock as follows. 𝐷(𝑡) = 𝜌[𝐼(𝑡)]𝜇 , where 𝜌 > 0 is scaling demand
and 0 ≤ 𝜇 < 1 is representing demand elasticity with respect to stock. The demand contributes a concave curve against the
stock.
(iii) Shortage is not permitted.
(iv) Both the replenishment rate and lot size are constrained to be finite.
(vi) The discourse of strategy-making is assumed to be infinite.

4. The mathematical model

The production–inventory process initiates at 𝑡 = 0 with a production rate 𝐾 = 𝑎 − 𝑏𝐼(𝑡). During 0 < 𝑡 ≤ 𝑡1 , the inventory falls to
fulfill the demand at the rate 𝐷 = 𝑐 − 𝑑𝑝. Also, fresh production positively impacts the growth of the stock. The manufacturing is
stopped after achieving a sufficient stock of products at 𝑡 = 𝑡1 (see Fig. 1).
The differential equations that represents the inventory dynamics at productive and non-productive phases is expressed below:
𝑑𝐼(𝑡)
= (𝑎 − 𝑏𝐼(𝑡)) − (𝑐 − 𝑑𝑝); 0 < 𝑡 ≤ 𝑡1 (1)
𝑑𝑡

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Fig. 1. Schematic diagram of the proposed model.

𝑑𝐼(𝑡)
= −𝜌[𝐼(𝑡)]𝜇 ; 𝑡1 ≤ 𝑡 ≤ 𝑇 (2)
𝑑𝑡
The information due to extreme ends associated with the differential Eqs. (1) and (2) provided as 𝐼(𝑡) = 0 at 𝑡 = 0 and 𝐼(𝑡) = 0 at
𝑡 = 𝑇 respectively.
After solving differential equations and utilizing the respective information due to extreme ends, the stock levels at productive
and non-productive phases are obtained as:
(𝑎 − 𝑐 + 𝑑𝑝)
𝐼(𝑡) = (1 − 𝑒−𝑏𝑡 ); if 0 < 𝑡 ≤ 𝑡1 (3)
𝑏
and
1
𝐼(𝑡) = [𝜌(1 − 𝜇)(𝑇 − 𝑡)] 1−𝜇 ; if 𝑡1 ≤ 𝑡 ≤ 𝑇 (4)

Also, the highest stock at the end of the production phase is obtained as:
(𝑎 − 𝑐 + 𝑑𝑝)
𝑄= (1 − 𝑒−𝑏𝑡1 ) (5)
𝑏
Also, using the continuity conditions given in Eqs. (3) and (4), the relationship between the production cycle and the decision cycle
is established as:
1 (𝑎 − 𝑐 + 𝑑𝑝)
𝑇 = 𝑡1 + [ (1 − 𝑒−𝑏𝑡1 )]1−𝜇 (6)
𝜌(1 − 𝜇) 𝑏
The sales revenue during the whole cycle is given by Eq. (7),
𝑡1 𝑇
𝑆𝑅 = 𝑝 (𝑐 − 𝑑𝑝)𝑑𝑡 + 𝑝 𝜌[𝐼(𝑡)]𝜇 𝑑𝑡
∫0 ∫𝑡1
1 1
= 𝐴𝑝𝑡1 + 𝑝{𝜌(1 − 𝜇)} 1−𝜇 (𝑇 − 𝑡) 1−𝜇 (7)

Using Eq. (6), Eq. (7) becomes

𝑆𝑅 = 𝐴𝑝𝑡1 + 𝐵𝑝(1 − 𝑒−𝑏𝑡1 ) (8)

(𝑎 − 𝑐 + 𝑑𝑝)
where 𝐴 = 𝑐 − 𝑑𝑝 and 𝐵 =
𝑏
The production cost (PC) during the interval [0, 𝑡1 ] is given by:
𝑡1
𝑃 𝐶 = 𝑐𝑝 (𝑎 − 𝑏𝐼(𝑡))𝑑𝑡
∫0

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

1 −𝑏𝑡1
= 𝑎𝑐𝑝 𝑡1 − 𝑏𝑐𝑝 𝐵[𝑡1 + (𝑒 − 1)] (9)
𝑏
The total holding cost (HC) in the time interval [0, 𝑇 ] is given by:
𝑡1 𝑇
𝐻𝐶 = 𝑐ℎ 𝐼(𝑡)𝑑𝑡 + 𝑐ℎ 𝐼(𝑡)𝑑𝑡
∫0 ∫ 𝑡1
𝑡1 𝑇 1
(𝑎 − 𝑐 + 𝑑𝑝)
= 𝑐ℎ (1 − 𝑒−𝑏𝑡 ) + 𝑐ℎ [(1 − 𝜇)𝜌(𝑇 − 𝑡)] 1−𝜇
∫0 𝑏 ∫𝑡1
1 1−𝜇 2−𝜇
1 −𝑏𝑡1
= 𝐵𝑐ℎ [𝑡1 + (𝑒 − 1)] + 𝑐ℎ {𝜌(1 − 𝜇)} 1−𝜇 { }(𝑇 − 𝑡) 1−𝜇 (10)
𝑏 2−𝜇
Using Eq. (6), Eq. (11) becomes
1 −𝑏𝑡1
𝐻𝐶 = 𝐵𝑐ℎ [𝑡1 + (𝑒 − 1)] + 𝐸[(1 − 𝑒−𝑏𝑡1 )]2−𝜇 (11)
𝑏
𝑐ℎ
where 𝐸 = 𝐵 2−𝜇
𝜌(2 − 𝜇)
The total Setup cost(SC) per cycle is given by:

𝑆𝐶 = 𝑐𝑠 (12)

Therefore, the total average cost of the production system per circle is given by, TAC = (PC + HC + SC)/T
1 1 1
𝑇 𝐴𝐶 = [𝑎𝑐𝑝 𝑡1 − 𝑏𝑐𝑝 𝐵[𝑡1 + (𝑒−𝑏𝑡 − 1)] + 𝐵𝑐ℎ [𝑡1 + (𝑒−𝑏𝑡 − 1)] + 𝐸[(1 − 𝑒−𝑏𝑡1 )]2−𝜇 + 𝑐𝑠 ]
𝑇 𝑏 𝑏
1 −𝑏𝑡1 −𝑏𝑡1 2−𝜇
= {𝑀𝑡1 + 𝐷(𝑒 − 1) + 𝐸(1 − 𝑒 ) + 𝑐𝑠 } (13)
𝑇
𝐵
Where, 𝑀 = 𝑎𝑐𝑝 + 𝐵(𝑐ℎ − 𝑏𝑐𝑝 ) and 𝐷 = (𝑐ℎ − 𝑏𝑐𝑝 )
𝑏
To simplify the above expression about Total average cost (TAC), We approximate the exponential function 𝑒−𝑏𝑡1 involved in the
profit function due to the hypothesis 𝑏𝑡1 ≪ 1. This approach of approximation leads Eq. (13) towards the following:
1
𝑇 𝐴𝐶 = {(𝑀 − 𝐷𝑏)𝑡1 + 𝐸(𝑏𝑡1 )2−𝜇 + 𝑐𝑠 } (14)
𝑇
Therefore, the total average profit per circle is given by: TAP = (SR-(PC + HC + SC))/T
1
𝑇 𝐴𝑃 = {𝐴𝑝𝑡1 + 𝐵𝑝(1 − 𝑒−𝑏𝑡1 ) − {(𝑀 − 𝐷𝑏)𝑡1 + 𝐸(𝑏𝑡1 )2−𝜇 + 𝑐𝑠 }} (15)
𝑇
To simplify the above expression about Total average cost (TAC), We approximate the exponential function 𝑒−𝑏𝑡1 involved in the
profit function due to the hypothesis 𝑏𝑡1 ≪ 1. This approach of approximation leads Eq. (15) towards the following:
1
𝑇 𝐴𝑃 = {𝐴𝑝𝑡1 + 𝐵𝑝𝑏𝑡1 − {(𝑀 − 𝐷𝑏)𝑡1 + 𝐸(𝑏𝑡1 )2−𝜇 + 𝑐𝑠 }} (16)
𝑇
The total average profit/cost ratio for the proposed inventory model is given by
𝑇 𝐴𝑃
𝑇 𝐴𝐶
𝑇𝑃
𝑇
= 𝑇𝐶
𝑇
𝑆𝑅
= −1
𝑇𝐶
(𝐴𝑝 + 𝐵𝑝𝑏)𝑡1
= −1
(𝑀 − 𝐷𝑏)𝑡1 + 𝐸(𝑏𝑡1 )2−𝜇 + 𝑐𝑠
(𝐴 + 𝐵𝑏)𝑝
= 𝑐𝑠
−1
(𝑀 − 𝐷𝑏) + 𝐸𝑏2−𝜇 𝑡1−𝜇
1
+ 𝑡1
𝑅
= 𝑐𝑠
−1
𝑁 + 𝑆𝑡1−𝜇
1
+ 𝑡1
= 𝑋(𝑡1 )
where 𝑅 = ((𝐴 + 𝑏𝐵)𝑝), 𝑁 = 𝑀 − 𝐷𝑏 and 𝑆 = 𝐸𝑏2−𝜇
𝑅
Therefore, 𝑋(𝑡1 ) = −1 (17)
𝑁 + 𝑥(𝑡1 )
𝑐
Where, 𝑥(𝑡1 ) = 𝑆𝑡1−𝜇
1
+ 𝑠 (18)
𝑡1

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

The model aims to maximize the total average profit/cost ratio 𝑋(𝑇 , 𝑡1 ). Therefore, the mathematical problem is
⎧max 𝑋(𝑡1 )
⎪
⎪subject to 0 < 𝑡1 ≤ 𝑇
⎨where, 𝑋(𝑡 ) = (19)
⎪ 1
𝑅
𝑁+𝑥(𝑡1 )
− 1, 𝑄 = (𝑎−𝑐+𝑑𝑝)
𝑏
(1 − 𝑒−𝑏𝑡1 )
⎪and 𝑇 = 𝑡 + 1 [ (𝑎−𝑐+𝑑𝑝) (1 − 𝑒−𝑏𝑡1 )]1−𝜇 .
⎩ 1 𝜌(1−𝜇) 𝑏

In Eq. (19), 𝑅 and 𝑁 are positive real numbers. Therefore, Eq. (19) is equivalent to the following Eq.
⎧min 𝑥(𝑡1 )
⎪
⎪subject to 0 < 𝑡1 ≤ 𝑇
⎨where, 𝑥(𝑡 ) = 𝑆𝑡1−𝜇 + 𝑐𝑠 , 𝑄 = (𝑎−𝑐+𝑑𝑝) (1 − 𝑒−𝑏𝑡1 ) (20)
⎪ 1 1 𝑡1 𝑏
⎪and 𝑇 = 𝑡 + 1 [ (𝑎−𝑐+𝑑𝑝) (1 − 𝑒−𝑏𝑡1 )]1−𝜇 .
⎩ 1 𝜌(1−𝜇) 𝑏

5. Problem solution

𝑐𝑠
Theorem 1. Consider the function 𝑥(𝑡1 ) = 𝑆𝑡1−𝜇
1
+ 𝑡1
given by Eq. (18) with 𝑡1 > 0. There exists a unique 𝑡∗1 that minimize the
1
𝑐
function 𝑥(𝑡1 ) when 𝜇 < 2. The minimal value for function 𝑥(𝑡1 ) is attained at the point 𝑡∗1 = { 𝑆(1−𝜇)
𝑠
} 2−𝜇 and the minimal value is
1−𝜇 1
𝑐 𝑐 −{ 2−𝜇 }
𝑥∗ = 𝑥(𝑡∗1 ) = 𝑆{ 𝑆(1−𝜇)
𝑠 𝑠
} 2−𝜇 + 𝑐𝑠 { 𝑆(1−𝜇) }

𝑐𝑠
Proof. Differentiating the function 𝑥(𝑡1 ) = 𝑆𝑡1−𝜇
1
+ 𝑡1
with respect to 𝑡1 > 0, we obtain:

𝑑𝑟(𝑡1 ) 𝑐
𝑥′ (𝑡1 ) = = (1 − 𝜇)𝑆𝑡−𝜇
1
− 𝑠 (21)
𝑑𝑡1 𝑡21
Under condition for optimization, we set
𝑑𝑥(𝑡1 )
𝑥′ (𝑡1 ) = =0
𝑑𝑡1
𝑐
⇒ (1 − 𝜇)𝑆𝑡−𝜇
1
− 𝑠 =0
𝑡21
𝑐
⇒ (1 − 𝜇)𝑆𝑡−𝜇
1
= 𝑠
𝑡21
𝑐
⇒ 𝑡2−𝜇
1
= 𝑠
𝑆(1 − 𝜇)
𝑐𝑠 1
⇒ 𝑡1 = { } 2−𝜇
𝑆(1 − 𝜇)
Therefore the optimal value is
𝑐𝑠 1
𝑡∗1 = { } 2−𝜇 (22)
𝑆(1 − 𝜇)
𝑐𝑠
Again differentiating the function 𝑥(𝑡1 ) = 𝑆𝑡1−𝜇
1
+ 𝑡1
with respect to 𝑡1 > 0, we get:

𝑥′′ (𝑡1 ) = 2𝑐𝑠 𝑡−3

1
− 𝜇(1 − 𝜇)𝑆𝑡−(1+𝜇)
1
(23)

We must have 𝑥′′ (𝑡1 ) > 0 at 𝑡1 = 𝑡∗1 to minimize the given function.

2𝑐𝑠 𝑡∗−3
1
− 𝜇(1 − 𝜇)𝑆𝑡1∗−(1+𝜇) > 0
𝑐𝑠 −3 𝑐𝑠 −(1+𝜇)
⇒ 2𝑐𝑠 { } 2−𝜇 > 𝑆𝜇(1 − 𝜇){ } 2−𝜇
𝑆(1 − 𝜇) 𝑆(1 − 𝜇)
⇒𝜇 < 2 (24)

Thus, the given function is clearly convex in 𝑡1 when 𝜇 < 2.

Therefore the minimal value of the function 𝑥(𝑡1 ) is got at the point 𝑡∗1 , and the minimal value is

𝑐𝑠 1−𝜇 𝑐𝑠 −{ 1 }
𝑥∗ = 𝑥(𝑡∗1 ) = 𝑆{ } 2−𝜇 + 𝑐𝑠 { } 2−𝜇 (25)
𝑆(1 − 𝜇) 𝑆(1 − 𝜇)
Complete the Proof.

Theorem 2. Consider the function 𝑋(𝑇 , 𝑡1 ) and 𝑥(𝑇 , 𝑡1 ) given by Eqs. (17) and (18) respectively. Then, the following propositions are for
the equivalent problems (19) and (20).

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

(i) The optimum solution is obtained at the point (𝑇 ∗ , 𝑡∗1 ),where

𝑐𝑠 1
1
𝑇∗ = { } 2−𝜇 + [𝐵𝑏𝑡∗1 ]1−𝜇 (26)
𝑆(1 − 𝜇) 𝜌(1 − 𝜇)
And
𝑐𝑠 1
𝑡∗1 = { } 2−𝜇 (27)
𝑆(1 − 𝜇)
(ii) The maximum total average profit and total average cost ratio 𝑋 ∗ is given by
𝑅
𝑋∗ = −1 (28)
𝑁 + 𝑥∗
(iii) The optimum size of lot 𝑄∗ is provided by

𝑄∗ = 𝐵𝑏𝑡∗1 (29)

Proof. (i) The preceding theorem provides the optimum value of 𝑡1 , say 𝑡∗1 to minimize 𝑥(𝑡1 ). Since the systems in (19) and (20)
are equivalent by construction, the same obtained value 𝑡∗1 will provide the maximum value of 𝑋(𝑡1 ). Thus, the optimal production
cycle 𝑡∗1 for the system (19) is obtained. The relational dependence of the production cycle 𝑡1 and the entire decision cycle 𝑇 is
given in Eq. (6). Thus, using the best value for the production cycle 𝑡∗1 in Eq. (6), the best value of the entire decision cycle can be
1
𝑐 1
obtained as follows: 𝑇 ∗ = { 𝑆(1−𝜇)
𝑠
} 2−𝜇 + 𝜌(1−𝜇)
[𝐵𝑏𝑡∗1 ]1−𝜇
(ii) The best production cycle 𝑡∗1 ensures the minimized value 𝑥∗ of the function 𝑥(𝑡1 ). Then, using Eq. (17), the maximum value of
the function 𝑋(𝑡1 ) is obtained as follows:
𝑅
𝑋∗ = −1
𝑁 + 𝑥∗
(iii) Approximating of the exponential function and putting 𝐵 = (𝑎−𝑐+𝑑𝑝)
𝑏
in Eq. (5), the lot size can be obtained by 𝑄 = 𝐵𝑏𝑡1 . Thus,
the best value of the production cycle 𝑡∗1 ensures the optimal lot size in the proposed model as follows: 𝑄∗ = 𝐵𝑏𝑡∗1

6. Numerical simulation

We consider an example providing numerical values to certain parameters with appropriate units.
Let us consider 𝑎 = 450, 𝑏 = 0.005, 𝑐 = 400, 𝑑 = 0.5, 𝑝 = 7, 𝜌 = 0.5, 𝑐𝑠 = 700, 𝑐ℎ = 1.25, 𝑐𝑝 = 2.5, 𝜇 = 0.5. By using Mathematica
1
𝑐
13.1 software and the expression 𝑡∗1 = { 𝑆(1−𝜇)
𝑠
} 2−𝜇 , we get the optimum value of the production cycle. Furthermore, the numerical
simulation using the same software and Theorem 2 in the earlier section, the optimum value of the objective function, total decision
cycle, and lot size are obtained as follows:
𝑇 = 39.4056 month, 𝑡1 = 1.66405 month, 𝑄 = 89.0265 unit, 𝑇 𝐴𝑃 ∕𝑇 𝐴𝐶 = 0.319657, Total cost= 3972.05 unit, Total profit = 1269.7,
unit.
We consider the numerical values given in the section on numerical simulation, the optimum value of 𝑡1 can be found, as the
total average profit-cost ratio is concave shown in Fig. 2. The optimum value of 𝑡1 = 1.66405. The optimum total profit-cost ratio is
𝑇 𝐴𝑃 ∕𝑇 𝐴𝐶 = 0.319657.

6.1. Sensitivity analysis

This subsection investigates the impact of alterations to crucial parameters on the optimal performance of the proposed system
to validate the theoretical aspects. This study alters specific parameters sequentially while maintaining the remaining parameters
fixed to the initial levels for providing the following determined outcomes (see, for results and graphical illustrations, Table 3 and
Figs. 3–11).
∙ The findings of this study indicate that the total production time and total time cycle show low sensitivity to changes in the value
of demand elasticity (𝜇). At the same time, it demonstrates moderate sensitivity towards the maximum inventory level. It is observed
that the total profit-cost ratio is significantly sensitive to the variations in the value of 𝜇. Any alternation in the value of 𝜇 exhibits a
proportional impact on the total production time, maximum inventory level, and total profit-cost ratio, whereas inversely impacting
the total time cycle.
∙ The sensitivity analysis showed that higher values of production rate potential (𝑎) result in moderate sensitivity of total production
time and total profit-cost ratio, while the total time cycle shows low sensitivity. On the contrary, lower values of 𝑎 lead to high
sensitivity in total production time and total profit-cost ratio, with moderate sensitivity observed in the total time cycle. However,
alterations to the value of 𝑎 hardly affect the maximum inventory level. The variations in the value of 𝑎 yield an inverse effect on
the optimal outcomes.
∙ Our findings demonstrate that when transitioning from lower to higher values of demand potential (𝑐), the sensitivity analysis to
the parameter 𝑐 gives the opposite result as that of the parameter 𝑎.
∙ According to the sensitivity assessment, the decision variables exhibit an inverse correlation to the selling price per unit of time
(𝑝), while the total profit-cost ratio shows a direct association. Though, changes to the value of 𝑝 possess no impact on the maximum

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Table 3
Sensitivity analysis of essential parameters on decision variables in the proposed model.

Parameters % changes Optimal results

𝑡1 𝑇 𝑄 𝑇𝑃 𝑇𝐶 𝑇 𝑃 ∕𝑇 𝐶 % changes
of 𝑇 𝑃 ∕𝑇 𝐶
−15 No feasible solution
−10 10.4737 48.2153 89.0265 16 988.3 12 704.6 1.33718 318.32
𝑎 = 450 −5 2.87182 40.6134 89.0265 3424.67 5169.26 0.662507 107.26
5 1.1714 38.913 89.0265 390.693 3483.72 0.112148 −64.92
10 0.903823 38.6454 89.0265 −86.7347 3218.48 −0.026949 −108.43
15 0.735757 38.4773 89.0265 −386.607 3051.89 −0.126678 −139.63
−15 0.784375 38.5259 89.0265 −511.641 2982.42 −0.171552 −153.67
−10 0.952156 38.5259 89.0265 −171.885 3171.18 −0.0542023 −116.96
−5 1.21125 38.9528 89.0265 352.772 3462.65 0.101879 −68.13
𝑐 = 400
5 2.65751 40.3991 89.0265 3281.46 5089.7 0.644725 101.69
10 6.59456 44.3361 89.0265 11254 9518.88 1.18228 269.86
15 No feasible solution
−15 1.68054 39.4221 89.0265 509.037 3990.61 0.127559 −60.10
−10 1.67501 39.4166 89.0265 764.26 3984.38 0.191814 −39.99
−5 1.66951 39.4111 89.0265 1017.81 3978.2 0.255846 −19.96
𝑝=7
5 1.65862 39.4002 89.0265 1519.94 3995.95 0.383248 19.89
10 1.65323 39.3948 89.0265 1768.56 3959.89 0.44662 39.72
15 1.64788 39.3894 89.0265 2015.57 3953.86 0.509773 59.48
−15 1.49318 37.2446 79.885 1238.69 3464.83 0.357503 11.84
−10 1.55117 37.9902 82.9879 1251.13 363 507 0.344183 7.67
−5 1.60811 38.7098 86.0337 1261.42 3804.12 0.331592 3.73
𝑐𝑠 = 700
5 1.71906 40.0794 91.9699 1276.1 4138.95 0.308316 −3.55
10 1.77321 40.7331 94.8669 1280.76 4304.86 0.297514 −6.93
15 1.82655 41.368 97.7203 1283.76 4469.87 0.287203 −10.15
−15 1.68054 39.4221 89.0265 1303.09 3990.61 0.32654 2.15
−10 1.67501 39.4221 89.0265 1291.89 3984.38 0.324238 1.43
−5 1.66951 39.4111 89.0265 1280.75 3978.2 0.321944 0.72
𝑑 = 0.5
5 1.65862 39.40021 89.0265 1258.71 3965.95 0.317379 −0.71
10 1.65323 39.3948 89.0265 1247.79 3959.89 0.315109 −1.42
15 1.64788 39.3894 89.0265 1236.95 3953.86 0.312846 −2.13
−15 1.85447 41.697 99.2141 1655.3 4186.28 0.395411 23.70
−10 1.78513 40.8757 95.5047 1514.9 4108.28 0.368742 15.36
−5 1.72193 40.1143 92.1235 1386.92 4037.18 0.343537 7.47
𝑐ℎ = 1.25
5 1.61079 38.7435 86.1774 1161.85 3912.14 0.296987 −7.09
10 1.5616 38.123 83.5458 1062.25 3856.8 0.275421 −13.84
15 1.516 37.5396 81.1062 969.990 3805.51 0.25487 −20.27
−15 1.66405 39.4056 89.0265 1550.5 3691.25 0.420049 31.41
−10 1.66405 39.4056 89.0265 1456.9 3784.85 0.38493 20.42
−5 1.66405 39.4056 89.0265 1363.3 3878.45 0.351506 9.96
𝑐𝑝 = 2.5
5 1.66405 39.4056 89.0265 1176.09 4065.66 0.289275 −9.50
10 1.66405 39.4056 89.0265 1082.49 4159.26 0.260261 −18.58
15 1.66405 39.4056 89.0265 988.888 4252.86 0.232523 −27.26
−15 1.26837 40.581 67.8579 651.062 3344.31 0.194678 −39.10
−10 1.3828 40.1693 73.98 827.45 3528.38 0.234513 −26.64
−5 1.51363 39.7755 80.9791 1031.76 3736.16 0.276156 −13.61
𝜇 = 0.5
5 1.83807 39.0667 98.3368 1548.41 4241.51 0.365061 14.20
10 2.04077 38.7676 109.181 1877 4551.42 0.412398 29.01
15 2.27861 38.5197 121.906 2267.13 4910.5 0.46169 44.43
−15 1.49318 43.5536 79.885 923.686 3779.83 0.244373 −23.55
−10 1.55117 42.039 82.9879 1041.13 3845.07 0.27077 −15.29
−5 1.60811 40.6626 86.0337 1156.42 3909.12 0.295825 −7.46
𝜌 = 0.5
5 1.71906 38.2528 91.9699 1381.1 4033.95 0.34237 7.11
10 1.77321 37.1913 94.8669 1490.76 4094.86 0.364055 13.89
15 1.82655 36.2104 97.7203 1598.76 4154.87 0.384792 20.38

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Fig. 2. Dependency of profit-cost ratio on production time 𝑡1 .

Fig. 3. Dependency of profit-cost ratio on demand elasticity 𝜇.

Fig. 4. Profit-cost ratio vs. maximum inventory level 𝑄 vs. production time 𝑡1 .

inventory level. The selling price per unit of time (𝑝) displays very low sensitivity of the decision variables, while the total profit-cost
ratio exhibits significant sensitivity.
∙ Variations in the setup cost per cycle (𝑐𝑠 ) give rise to a direct association with the optimal decision variables and maximum
inventory level but an inverse association with the total profit-cost ratio. The findings of the analysis also exhibit that altering the
value of the parameter 𝑐𝑠 has a moderate effect on the optimal results.

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Fig. 5. Profit-cost ratio vs. total time cycle 𝑇 vs. production time 𝑡1 .

Fig. 6. Changes the total cost with respect to changes in the percentage of the parameters 𝑎, 𝑐, 𝑑, 𝜇 and 𝜌.

Fig. 7. Changes the total cost with respect to changes in the percentage of the parameters 𝑐𝑝 , 𝑝, 𝑐𝑠 , and 𝑐ℎ .

∙ Any alternation in the value of holding cost (𝑐ℎ ) possesses an inverse correlation with the optimal outcomes. Furthermore, the
investigation indicates that changing the value of the parameter 𝑐ℎ only modestly impacts the optimal results.
∙ Variations in the production cost per unit of time (𝑐𝑝 ) hardly affect the decision variables and maximum inventory level. On the
other hand, the total profit-cost ratio shows significant sensitivity. The total profit-cost ratio exhibits an inverse correlation to the
production cost per unit of time.
∙ The decision variables and maximum inventory level are moderately sensitive, while the total profit-cost ratio is significantly
sensitive to any alternations of the scale parameter of the demand rate (𝜌). Variations in the value of 𝜌 exhibit a proportional impact
on the total production time, maximum inventory level, and total profit-cost ratio, whereas inversely impacting the complete time
cycle.

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Fig. 8. Changes the total profit with respect to changes in the percentage of the parameters 𝑎, 𝑐, 𝑑, 𝜇 and 𝜌.

Fig. 9. Changes the total profit with respect to changes in the percentage of the parameters 𝑐𝑝 , 𝑝, 𝑐𝑠 , and 𝑐ℎ .

Fig. 10. Changes the profit-cost ratio with respect to changes in the percentage of the parameters 𝑎, 𝑐, 𝑑, 𝜇 and 𝜌.

6.2. Managerial insights

The current research yields several useful managerial insights from the sensitivity analysis of key parameters (see, in subsection)
as follows:

(a) In a scenario where the values of production rate potential and demand potential are very close, resulting in the maximization
of the profit-cost ratio, managers must focus on fine-tuning their strategies to maintain this delicate balance. The goal is to
optimize production efficiency and inventory management while meeting customer demands effectively.

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Fig. 11. Changes the profit-cost ratio with respect to changes in the percentage of the parameters 𝑐𝑝 , 𝑝, 𝑐𝑠 , and 𝑐ℎ .

Therefore, this study recommends implementing robust demand forecasting methods to predict customer demand accurately.
The manufacturer may adopt agile production planning processes to respond quickly to market or production rate potential
changes. The manufacturer can implement risk mitigation strategies to address potential disruptions in both production and
demand.
(b) The decision variables decrease, and the total profit-cost ratio increases when the selling price per unit of time (𝑝) increases.
Though, changes to the value of 𝑝 have no impact on the maximum inventory level.
Therefore, by increasing the selling price of the product and generating more profit, manufacturing efficiency must be
enhanced in a shorter business period. Managers should optimize pricing strategies to maximize profitability while considering
operational efficiency.
(c) When holding costs increase (𝑐ℎ ), the cost of storing and managing inventory rises. To mitigate these costs, managers may
reduce production time. Reducing production time can minimize inventory storage costs. As production time decreases due to
increased holding costs, the total business time will likely be positively affected. Shorter production cycles may lead to quicker
product turnover and more frequent stock replenishment. But in such instances, the profit-cost ratio decreases significantly;
this indicates that a larger revenue share covers expenditures, leaving a lesser portion as profit.
Thus, this study proposes the manufacturer identify and eliminate inefficiencies in the production process to reduce
production time. The manufacturer may negotiate favorable terms with suppliers for discounts, bulk purchase benefits, or
improved credit terms. The manufacturer can consider value engineering to find innovative ways to reduce production costs
without compromising product quality. Managers should identify consumer segments willing to pay a premium for the items
or services supplied. Understanding customer preferences and tailoring marketing efforts can increase sales and improve profit
margins.
(d) The cost and the profit must depend on the production of items in a manufacturing organization. The results in this paper
suggest that the average cost can be decreased by making the production scale large. But it also reduces the average cost.
Furthermore, the profit-cost ratio also has diminishing characteristics to the enhancement of the production ability of the
manufacturing organization.

7. Conclusion

This paper describes an EPQ model with a sharpened optimal decision perspective. We considered the production rate as
inventory dependent. The production is constrained by inventory level. The demand rate is taken as a function of stock and price.
Low selling price creates additional demand, while big stock sizes do the same. The cost minimization objective is equivalent to the
profit maximization objective for many economic decisions scenario. But they are more complex for each such decision scenario. Cost
reduction may constrain the production and warehousing policy, which may adversely impact the profit maximization objective. So,
the profit-cost ratio should be optimized to deal with economic decision phenomena. We opted for the profit-cost ratio maximization
as the objective function, which exhibits the profit for accumulated costs. From the theory of this paper, it is perceived that the
profit-cost ratio function is concave concerning the production cycle. Both the total cost and profit increase as the production rate
decreases. But the intensity of profit enhancement is sharper than the cost, concerning a decline in the production rate. Another
significant finding from this model is that through a hike in the selling price, demand may be declined. Still, the profit and cost
can be enhanced and lowered, respectively, resulting in the overall enhancement in the profit-cost ratio. Despite the novelty of
model formulation and its optimization, we acknowledged the limitations of this study. We used theory-driven artificial data for the
numerical analysis of the model. Industrial data may fill this lacuna in this study in the future. Another limitation of the hypothesis
is that parameters and decision variables in this model are all taken in a deterministic environment. It will be a fruitful consequence
of this study to consider the proposed model in an uncertain environment characterized by interval, fuzzy and Neutrosophic logic.

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M. Hossain et al. Results in Control and Optimization 15 (2024) 100408

Funding

No funds, grants, or other support were received.

Declaration of competing interest

I hereby declare that the said manuscript is not copyrighted, has not been accepted for publication (or published) in any other
referred journal, and has not been referred elsewhere. Kindly consider this research paper for publication in your extreme journal.
We declared that we have no known competing financial interests or personal relationships that could have appeared to influence
the work reported in this paper.

Data availability

No data was used for the research described in the article.

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