Purchase cards and inventory control - An analytical framework

A. Chandrashekar, Mohan Gopalakrishnan

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

In the context of e-business, companies use purchase cards (P-cards) to order merchandise directly from the supplier (or use the web or other e-procurement systems). The card company does the budget control and record keeping. Hence, P-cards are touted as leading to reduction in ordering costs for the buyer and financial settlement time for the seller. However, P-cards have a credit limit, and exceeding the limit results in penalties that increase the cost of ordering. So, the question is whether P-cards will reduce total inventory management costs for the buyer compared to obtaining a direct credit from the supplier? This paper shows that for the single item situation, a critical ordering cost exists such that the P-card can be used if and only if the actual cost of ordering using a P-card is less than this critical value. If the actual ordering cost using a P-card is above this critical level, it is preferable to continue with the traditional way of dealing directly with supplier credit policies rather than using a P-card. Numerical/graphical examples are given to illustrate this point.

Original languageEnglish (US)
Pages (from-to)437-443
Number of pages7
JournalProduction Planning and Control
Volume16
Issue number5
DOIs
StatePublished - Jul 1 2005

Keywords

  • EOQ
  • Inventory
  • Order cost
  • P-cards
  • Supplier credit

ASJC Scopus subject areas

  • Computer Science Applications
  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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