The Replenishment Decision for EOQ Inventory Model under Permissible Delay in Payments

Abstract

This paper discusses the economic order quantity (EOQ) under conditions of permissible delay in payments. In 1985, Goyal assumed that: (1) The unit selling price and the unit purchasing price are equal. (2) At the end of the credit period, the account is settled. The retailer starts paying for higher interest charges on the items in stock and returns money of the remaining balance immediately when the items are sold. The main purpose of this paper is to modify Goyal’s model to presume that the unit selling price and the unit purchasing price are not necessarily equal to reflect the real-life situations. Furthermore, this paper will propose that at the end of the credit period, the retailer will borrow 100% purchasing cost from the bank to pay off the account. Comparing with Goyal’s model, it is also shown that the optimal cycle times in this paper are not longer than those of Goyal’s model. Three theorems are developed to determine the optimal cycle time and the optimal order quantity. Numerical examples are given to illustrate these theorems.