An Optimal Replenishment Policy under Conditions of Permissible Delay in Payment and Shortages

Shih-Ming Ou

Most of the past research on economic replenishment quantity did not consider the trade credit period. In practice, however, companies in Taiwan have shown that taking the trade credit period into account when they are making inventory decisions decreases costs substantially. The aim of this paper was to develop an inventory model that incorporates a delay in payments for permissible shortages to minimize the total inventory-relevant cost. The optimal replenishment policy of the proposed model was identified by utilizing the global optimum conditions and non-constrained quadratic nonlinear programming. A numerical example was also generated.