Optimal payment time with deteriorating items under inflation and permissible delay in payments

Abstract

This article develops an inventory model under a situation in which the supplier provides the purchaser with a permissible delay of payments. Shortages are not allowed and the effect of the inflation rate, deterioration rate and delay in payment are discussed as well. As a result, in this article, we establish a mathematical model to determine the optimal payment period and replenishment cycle. Using Taylor series approximation, we characterise the optimal solution and provide an easy-to-use algorithm to find the optimal solution. Finally, the proposed models are illustrated through numerical examples and the sensitivity analysis is reported.

Keywords:

• inventory
• finance
• delay payments
• payment period
• deteriorating items

Acknowledgements

The authors are grateful to the Associate Editor and two anonymous referees for their encouragement and constructive comments. The work of the first author was partially supported by the National Science Council of ROC Grant NSC 97-2410-H-032-023.