AN EOQ MODEL WITH LIMITED STORAGE CAPACITY UNDER TRADE CREDITS

Liang-Yuh Ouyang (), Kun-Shan Wu and Chih-Te Yang
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Liang-Yuh Ouyang: Department of Management Sciences and Decision Making, Tamkang University, Tamsui, Taipei 251, Taiwan
Kun-Shan Wu: Department of Business Administration, Tamkang University, Tamsui, Taipei 251, Taiwan
Chih-Te Yang: Department of Industrial Engineering & Management, Ching-Yun University, Jung-Li 320, Taiwan

Asia-Pacific Journal of Operational Research (APJOR), 2007, vol. 24, issue 04, pages 575-592

Abstract: In the classical economic order quantity (EOQ) inventory model, it was assumed that the retailer must pay for the received items immediately. However, in practice, the supplier not only allows retailer to settle the account after a certain fixed period but also may offer a cash discount to encourage the retailer to pay for his purchases as soon as possible. On the other hand, it is common practice in most inventory systems to hold excess stocks in a rented warehouse whenever the storage capacity of the owned warehouse is insufficient. Therefore, the purpose of this paper is to establish an EOQ model with limited storage capacity, in which the supplier provides cash discount and permissible delay in payments for the retailer. In the model, we develop some useful theorems to characterize the optimal solution and provide a simple method to find the optimal replenishment cycle time and payment time. Finally, several numerical examples are given to illustrate the theoretical results and some managerial insights are also obtained.

Keywords: Inventory; limited storage capacity; cash discount; payment delay (search for similar items in EconPapers)
Date: 2007
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