Optimal Ordering Policies Under Conditions of Extended Payment Privileges

Article Abstract:

This paper develops optimal order quantities for firms that are offered a one-time opportunity to delay payment for an order of a commodity. Such delayed payments result in a reduction of the effective purchase cost, which is a function of the return available on alternative investments, the number of units of the commodity ordered, and the length of the extended period. Optimal order quantities are developed for extended payment privileges that occur at a reorder point of between reorder points. Six suppliers' extended payment scenarios are evaluated. A simulation analysis is conducted to determine the sensitivity of derived models to changes in the various input parameters. The simulation with realistic parameter values reveals that the additional discounted order quantity is insensitive to large changes in the ordering cost and unit price; sensitive to changes in the carrying cost and return rate of funds, but without significantly affecting the total cost; and extremely sensitive to the annual demand. Simple analytic decision rules are provided to guide firms that are offered such extended payment privileges. (Reprinted by Permission of Publisher.)

Management science, Cost, Purchases, Production, Inventory Control, Simulation

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An optimal policy for a two depot inventory problem with stock transfer

Article Abstract:

Companies usually employ multiple depot inventory systems with stock transfer when demand is greater than storage capacity. Major considerations when using such systems are determining the number of each item to be held at each depot and deciding what should be done if there is demand for an item at a depot without that item in stock. A study was conducted to examine these issues. In particular, it examined the inventory problem of a British car part retail that lumps its depots into pairs. It was found that the optimal reorder policy is to order up to given levels in each depot. In contrast, the optimal transfer policy is to transfer an item when more stock is available in the first depot at a particular time or to transfer an item in response to unmet demand at all times.

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Optimal ordering policies under conditions of extended payment privileges

Article Abstract:

This study determines maximum ordering policies for companies that have the option of extended payment at the point of reorder, or between points of reorder, and to identify decision rules for such companies. Maximum order amounts must be determined to take advantage of the decrease in purchase cost, so the extended payment situation of six suppliers are examined. The models used were subjected to a sensitivity analysis. The straightforward decision rules can be used by companies in a position to utilize extended payment privileges as guidelines.

Purchasing

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