Title: The inventory optimisation taking into account time value of money and order payment deferrals
Authors: Gennady L. Brodetskiy
Addresses: School of Logistics, National Research University 'Higher School of Economics', 20 Myasnitskaya Ulitsa, Moscow 101000, Russia
Abstract: In this paper, an approach to inventory management EOQ-model optimisation taking into account the time value of money and deferrals available for the order cost payments is developed and presented. The research is performed for models with cost-effective supply chains when due to the specified deferral an order payment, storage and other business costs can be paid from revenue. These requirements/limitations require to establish the necessary and sufficient condition for single product and multiproduct models, where the condition provides an opportunity to pay required costs from revenue of the previous reorder interval. The corresponding estimation of the profitability of working capital of such models is given in this article. It can be used when optimising supply chains with the deferred payment of the order, and taking into account the TVM. The EOQ-formula modification for determining optimal parameters of inventory management strategy taking into account the mentioned features is presented in this research. It is also shown that taking the TVM into account for such models refers to the phenomenon of reducing the profitability of working capital.
Keywords: inventory management; time value of money; TVM; order payment deferrals; economic order quantity; EOQ-models; single product models; multiproduct models; supply chain management; total costs; order payments from revenue.
International Journal of Logistics Systems and Management, 2017 Vol.28 No.4, pp.486 - 506
Received: 04 May 2016
Accepted: 20 Jul 2016
Published online: 03 Oct 2017 *