A Cash Flow Oriented EOQ Model with Deteriorating Items Under Permissible Delay in Payments

Abstract

This paper develops an inventory model to determine an optimal ordering policy for deteriorating items with delayed payments permitted by the supplier under inflation and time discounting. This study applies the discounted cash flows (DCF) approach for problem analysis. Mathematical models have been derived for obtaining the optimal cycle time and optimal payment time for item so that the annual total relevant cost is minimized. The present value of the annual total relevant cost in this inventory system is developed first, then an optimal number of replenishment, cycle time, and order quantity are obtained by a solution procedure. The effect of credit period, inflation and time value of money was investigated under givens sets of above parameters. This study shows that the optimal order quantity, cycle time and associated the present value of total costs vary with difference among credit period, deterioration rate and net discount rate of inflation. Computational results can help managers provide some interesting policy implications to determine the optimal the present value of total costs.