Retailer's EOQ Model with Limited Storage Space Under Partially Permissible Delay in Payments

Yung-Fu Huang,Chih-Sung Lai,Maw-Liann Shyu

doi:10.1155/2007/90873

Yung-Fu Huang, Chih-Sung Lai + Show 1 more

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https://doi.org/10.1155/2007/90873

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Abstract

The main purpose of this paper wants to investigate the optimal retailer's lot-sizing policy with two warehouses under partially permissible delay in payments within the economic order quantity (EOQ) framework. In this paper, we want to extend that fully permissible delay in payments to the supplier would offer the retailer partially permissible delay in payments. That is, the retailer must make a partial payment to the supplier when the order is received. Then the retailer must pay off the remaining balance at the end of the permissible delay period. In addition, we want to add the assumption that the retailer's storage space is limited. That is, the retailer will rent the warehouse to store these exceeding items when the order quantity is larger than retailer's storage space. Under these conditions, we model the retailer's inventory system as a cost minimization problem to determine the retailer's optimal cycle time and optimal order quantity. Three theorems are developed to efficiently determine the optimal replenishment policy for the retailer. Finally, numerical examples are given to illustrate these theorems and obtained a lot of managerial insights.

Highlights

The traditional economic order quantity (EOQ) model focuses on the buyer’s view and makes several assumptions, for example, no stockouts, fixed demand rate, unlimited store space, zero lead time and must be paid for the items as soon as the items were received
We model the retailer’s inventory system as a cost minimization problem to determine the retailer’s optimal cycle time and optimal order quantity
Chung et al [15] discussed this issue under the assumptions that the selling price is not equal to the purchasing price and different payment rules are allowed

Summary

Introduction

The traditional economic order quantity (EOQ) model focuses on the buyer’s view and makes several assumptions, for example, no stockouts, fixed demand rate, unlimited store space, zero lead time and must be paid for the items as soon as the items were received. Chung and Huang [17] extended Goyal [1] to consider the case that the units are replenished at a finite rate under permissible delay in payments and developed an efficient solution-finding procedure to determine the retailer’s optimal ordering policy. Chang et al [21] and Chung and Liao [24] dealt with the problem of determining the economic order quantity for exponentially deteriorating items under permissible delay in payments depending on the ordering quantity and developed an efficient solution-finding procedure to determine the retailer’s optimal ordering policy. We investigate that this integrated model is very important and valuable to the enterprise

Model formulation

Special cases

Numerical examples

Summary and conclusions