A cash flow-oriented EOQ model of deteriorating items with increasing demand rate and shortages under permissible delay in payment

Abstract

This study presents an inventory model to determine an optimal ordering policy for deteriorating items with exponential increasing demand and shortages with delay in payments permitted by the supplier under inflation and discounting. Mathematical model has been derived under two different situations, i.e., case I: the permissible delay period is less than or equal to replenishment cycle period for settling the account and case II: the permissible delay period is greater than replenishment cycle period for settling the account. This study determines the optimal cycle period and optimal payment period for item so that the annual total relevant cost is minimised. The effect of credit period, inflation and time value of money was investigated under given sets of parameters. The main purpose of this paper is to investigate the optimal (minimum) total present value of the costs over the time horizon H for both cases (i.e., case I and II). LINGO is used to obtain the minimum total present value of the costs.