EOQ under Date-terms Supplier Credit

Abstract

This paper examines EOQ under date-terms supplier credit, making explicit the separate effects on inventory policy of the two components of carrying cost-namely, financing cost and other variable holding costs. When a distinction between these types of holding costs is made, EOQ can no longer be expressed as a simple formula. Rather, optimal order quantity must be determined by search over a well-defined range of order quantities which encompasses the classical EOQ. The conclusion currently contained in the literature that the optimal order quantity under date terms is always given by an integer multiple of monthly demands no longer applies. In particular, a unique feature of date-terms credit is the possible existence of multiple EOQs.

Keywords:

• Inventory Control
• Trade Credit