Financial Implications of Lot-Size Inventory Models

Abstract

The definition of the cost of resources devoted to inventories which is inherent in the economic-lot-size procedure implies financial conditions which may not exist. This would lead to infeasibility and/or to a misstatement of carrying costs. If carrying costs are incorrectly stated, then in these, as well as all standard inventory models which emobdy the same assumption, the indicated optimum inventory is either too high or too low, and needlessly excessive costs are incurred by firms using such models. These weaknesses can be corrected by reflecting the firm's actual financial arrangements in the model's carrying cost equation and deriving the corresponding optimum lot size. Examples are presented illustrating how this may be done in the face of several different financial circumstances. In each case, the results of our procedure are compared to those that emerge from an application of the standard lot-size model. Worthwhile savings in inventory cost are indicated, especially if the firm is employing the standard, or classical, model for a number of different products or for a single product which involves a large commitment of resources. In sum, the model builder must be prepared to develop models which reflect the conditions of his financial environment if he is to choose both an optimal inventory and an optimal means of financing the inventory.

Managing Opportunistic Supplier Product Adulteration: Deferred Payments, Inspection, and Combined Mechanisms

“…Theoretical models that explain trade credit's popularity and the corresponding empirical findings are reviewed in Petersen and Rajan (1997), Biais and Gollier (1997), Ng et al (1999), and Giannetti et al (2008). For research on trade credit in Operations Management literature, see Baranek (1967), Haley and Higgins (1973), Rachamandugu (1989), Gupta and Wang (2009), Babich et al (to appear), Zhou and Groenevelt (2008), Kouvelis and Zhao (2009), Yang and Birge (2009), Brunet and Babich (2007) and references therein.…”

Introduction to the Special Issue on Research at the Interface of Finance, Operations, and Risk Management (iFORM): Recent Contributions and Future Directions

“…OM research in trade credit has a long history, from early works by Baranek (1967) and Haley and Higgins (1973) to recent papers by Gupta and Wang (2009) and Babich and Tang (2012) (for quick references to work in this area, see Babich et al 2012, Kouvelis andZhao 2012). The usual stylized model in this literature is that of a bilateral supply chain of a monopolist supplier selling to a newsvendor or a monopolist retailer with trade credit terms set as a part of the supply chain contract (which is most often a wholesale price contract).…”

A Fuzzy Inventory Model with Lot Size Dependent Ordering Cost in Healthcare Industries

“…Gordon [10], Emery [8], Arrow [1] have given so many worth results in this field. A number of real locations carrying cost depends on the lot-size and different expansions of non-constant carrying cost can be seen in Beranek [2]. Karabi Dutta Choudhury et al [14] discussed about an inventory model with lot size dependent or carrying cost.…”