AN INVENTORY MODEL WITH DETERIORATING ITEMS UNDER PERMISSIBLE DELAY IN PAYMENTS

ABSTRACT

In modern business transactions, it is a very common to allow customers some grace period before they settle the account with the supplier. The purchaser can benefit from this delay in payment due to the time value of money. Although researches with permissible delay in payment have been developed for years, most of the models considered infinite replenishment rate. However, in real-life, the replenishment rate is seldom infinite. In order to be more realistic and practical, this study develops an inventory model for deteriorating items with finite replenishment rate and shortage under permissible delay in payment. The objective of the study is to minimize the total cost by deriving the optimal ordering quantity and cycle time under permissible delay in payment. Since the derived models involve a high-order exponential function, it is not possible to solve the problem directly by classical optimization method. A computer search algorithm is developed to obtain the optimal ordering quantity and cycle time. Numerical examples are given to validate the analysis of the models.

Keywords:

• delay in payment
• finite replenishment rate
• deteriorating items
• shortage