An ordering policy for deteriorating items with allowable shortage and permissible delay in payment

Abstract

In many inventory situations, the purchaser is allowed a permissible period to pay back the cost of goods bought without paying any interest. Depending on the length of that payment period, the purchaser can earn interest on the sales of the inventory. This paper develops a model to determine an optimal ordering policy for deteriorating items under permissible delay of payment and allowable shortage. Different facets of the permissible delays in payment are discussed, and this generalized model exhibits a set of solutions that reduces to an existing model. Results are discussed and demonstrated with an illustrative example.

Keywords:

• inventory
• replenishment
• delay
• deterioration
• shortage
• payment