Determining lot-size inventory model when delay in payments are permissible for a system with two storage facilities

Abstract

In this paper a mathematical model of the economic ordering quantity with two storage facilities for single item has been considered under the conditions that when the fixed delay in payments are permissible by the supplier. In practice, however, supplier allows some fixed delay in settling the account after receiving goods, and no interest charges are payable on the out-standing as long as the account is settled within the specified delay period. The inventory system under consideration does not have sufficient space to accommodate the on-hand inventory. In such situation W units are stored at own warehouse (OW), and excess inventory is required to be kept in Rented Warehouse (RW). The holding costs at RW are higher as compared to OW. In this paper an attempt is made to analyse: a) when the system has both the warehouses facilities to accommodate the order quantity; b) when the OW has large capacity to store the on-hand inventory; c) when one does not wish to take RW services and stores maximum of OW capacity; and d) when simple EOQ model of single storage systems. The system suggests that when to hire RW services for more profitability among the given four alternatives. An expression for optimal order quantity is derived for all the above cases with an example to illustrate the methodology.