EPQ Models under Permissible Payment Delay: An Algebraic Approach

Abstract

The main purpose of this paper is to relax the Ouyang et al.’s model (2004) using the algebraic method to determine the optimal inventory replenishment policy for the retailer under finite replenishment rate and permissible delay in payments. Ouyang et al. (2004) assumed that the retailer would not consider paying payment until receiving all items. The purpose of this paper is to relax this assumption and establish the retailer’s inventory system as a cost minimization problem to determine the retailer’s optimal inventory cycle time. Then, an algebraic approach is provided and an easy-to-use theorem is derived to efficiently determine the optimal cycle time. Finally, numerical examples are given to illustrate the results and managerial insights are drawn.