EOQ model with stock level dependent demand rate and inflation under trade credits

Abstract

This paper deals with the development of an inventory model for stock-level dependent demand rate with delayed payments allowed to the retailer to settle the account against the purchases, under inflation and time-discounting. In this study we apply the discounted cash flow approach to the analysis of the problem. Mathematical models have been derived for finding the optimal solution so that the annual total relevant cost is a minimum under two different circumstances, i.e. Case I: the replenishment cycle time T is greater than or equal to the permissible delay period m; and Case II: the replenishment cycle time T is less than the permissible delay period m. An algorithm is used for finding the optimal solution. The effects of the trade credit period, inflation, and the time value of money were investigated under a given set of parameters. The solution procedure is given for solving a numerical example. Sensitivity analysis is given to prove the validity of the proposed model for different parameters.

Keywords:

• inventory
• delay in payments
• cash flow
• inflation
• stock dependent demand

Acknowledgements

The author would like to thanks anonymous referees for their very valuable and constructive suggestions to improve the paper.