The influence of the order prepayment on inventory optimisation

Gennadiy L. Brodetskiy

International Journal of Logistics Systems and Management, 2019, vol. 32, issue 1, 49-68

Abstract: Modification of the inventory management EOQ-model factoring in the temporary value of money (TVM) and an advance payment of the order on the basis of the credit is given in this article. Its purpose is to present for the managers an appropriate modification of the EOQ-formulas for such models (both for deliveries of one nomenclature of goods, and for multinomenclature deliveries). Usage of these modifications will allow to increase the efficiency of deliveries by taking into account the specificity of appropriate cash flows, if optimisation takes into account TVM (by the scheme of simple interest). It is accepted that all payments are being realised from the revenue of the previous delivery. The necessary and sufficient condition for a possibility of such payments is established. The interest rate for factoring in the TVM reflects profitability of working capital of the modelled supply chain. It is defined in a format of the model. It is noted that the optimisation of the models of this type relate with the synergetic effect of increasing the profitability of working capital.

Keywords: order prepayment; credit for order payment; inventory management; economic order quantity; EOQ; temporary value of money; TVM; payments from revenue; working capital profitability; EOQ modification. (search for similar items in EconPapers)
Date: 2019
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