Economic order quantity model considering product damage and permissible delay in payment

Abstract

In consumer goods business there are two factors that related to the inventory policy. First, there is a permissible delay in payments given by the vendor. This delay on payment can be used by the company to make extra profit but with a risk of given fine cost if the payments exceed the promised date. Second, there is a possibility of some damaged products, which cannot be sold to the customer. The purpose of this research is to develop an inventory model considering both the damage factor in product and payments delay. There were previous researches, considering payment delay and perishable product, same with damaged product, separately, that were the basis of the developed model. The data from the previous models was applied to the developed model and a comparison has been made. It can be concluded that the developed model is applicable to obtain optimal order quantity by considering damage factor in product and delay in payment. The developed model had also more complete cost components, lower order quantity, and higher total inventory cost compared to the previous ones.