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ABSTRACT: Trade credit plays an important role in financing for many businesses and industries. For the buyers, purchased inventory can be considered to be financed in whole or in part with permissible delay in payments during the purchasing process. On the other hand, both the vendor and buyer take part in order-processing cost reduction by applying information technologies, such as EDI (electronic data interchange). The order-processing cost can also be reduced by adding certain capital investments, and this will affect the lot size decisions. This article develops an integrated inventory model to determine the optimal inventory policy under conditions of order-processing cost reduction and permissible delay in payments, and shows that the total annual variable cost function possesses some kinds of convexities. A solution procedure is provided to determine the optimal order policy. Finally, a numerical example is presented to illustrate the solution procedure.
European Journal of Operational Research 01/2010; 202(2):473-478. · 1.82 Impact Factor
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ABSTRACT: This study deals with the order-processing cost reduction and permissible delay in payments problem in the single-vendor single-buyer integrated inventory model. We consider that the order-processing cost can be reduced at an extra crashing cost, which varies with the reduction in the order-processing time length . In addition, the buyer is allowed a fixed time period before they settle the account with the vendor. The objective of this study is to minimize the annual integrated total cost by optimizing simultaneously the delivery interval, the number of deliveries per order and the investment cost in order-processing time. An integrated total cost function is derived, and an algorithm procedure is proposed for determining the optimal decision variables. Finally, numerical examples are provided to illustrate the algorithm procedure.
International Journal of Production Economics.
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ABSTRACT: It is common business practice to purchase inventory on an open account. Purchased inventory can be considered to be financed in whole or in part with permissible delay in payments. This paper develops a model to determine an optimal ordering policy under conditions of allowable shortage and permissible delay in payment and shows that the total annual variable cost function possesses some kinds of convexities. With those convexities, a theorem is presented to determine the optimal order quantity. Numerical examples are given to illustrate the theorem.
Applied Mathematical Modelling.
