Economic order quality when a discount is offered on cash purchases

Abstract

Classical Wilsonzs EOQ model assumes that the payments for goods are made at the time of delivery and therefore a sufficient portion of carrying cost is incurred due to money blocked in inventories. In many situations, however, it is observed that the supplier allows delay in making payments of goods and offers a unit discount on cash purchases. The delay offered may be of various types such as delay of a fixed duration or a delay of an inventory cycle. In this paper, mathematical models have been developed to analyze when, if at all, purchasing on cash is preferable over delayed payment options. A total of four delay options are considered. Finally a numerical example is given to illustrate the methodology.