Analytical framework for the multi-item, economic order quantity model with permissible delay in payments and a budget constraint. A note

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2 Citations (Scopus)

Abstract

In a previous work (Chandrashekar, A., and Gopalakrishnan, M., Purchase cards and inventory control - an analytical framework. Prod. Plan. Cont., 2005, 16(5), 437-443) we developed a framework for comparing the use of 'purchase cards' (P-cards) to order merchandise directly from a supplier versus obtaining direct credit from the supplier. We illustrated for the single-item case, that there exists a critical ordering cost such that the P-card can be used if and only if the actual cost of ordering using P-card is less than this critical value. In this paper we extend this framework for determining the optimal replenishment quantity for multi-item ordering under the conditions of permissible delay in payment, a budget constraint, and permissible partial payment at a penalty. The analysis indicates that it is more economical for the purchaser to make entire payments even when the interest earned is greater than the interest charged. This note reflects reality more accurately.

Original languageEnglish (US)
Pages (from-to)361-363
Number of pages3
JournalProduction Planning and Control
Volume18
Issue number4
DOIs
StatePublished - Jun 2007

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Economics
Inventory control
Costs
Economic order quantity
Budget constraint
Purchase
Permissible delay in payments
Payment
Suppliers
Credit
Replenishment
Critical value
Penalty

Keywords

  • Budget limit
  • Multi-item EOQ
  • Partial payment
  • Supplier credit

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering
  • Management Science and Operations Research

Cite this

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abstract = "In a previous work (Chandrashekar, A., and Gopalakrishnan, M., Purchase cards and inventory control - an analytical framework. Prod. Plan. Cont., 2005, 16(5), 437-443) we developed a framework for comparing the use of 'purchase cards' (P-cards) to order merchandise directly from a supplier versus obtaining direct credit from the supplier. We illustrated for the single-item case, that there exists a critical ordering cost such that the P-card can be used if and only if the actual cost of ordering using P-card is less than this critical value. In this paper we extend this framework for determining the optimal replenishment quantity for multi-item ordering under the conditions of permissible delay in payment, a budget constraint, and permissible partial payment at a penalty. The analysis indicates that it is more economical for the purchaser to make entire payments even when the interest earned is greater than the interest charged. This note reflects reality more accurately.",
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