scholarly journals Inventory and Credit Decisions under Day-Terms Credit Linked Demand and Allowance for Bad Debts

2014 ◽  
Vol 2014 ◽  
pp. 1-11 ◽  
Author(s):  
K. K. Aggarwal ◽  
Arun Kumar Tyagi
Keyword(s):  
Logistic Function ◽  
Discounted Cash Flow ◽  
Accounts Receivable ◽  
Credit Period ◽  
Proposed Model ◽  
Net Profit ◽  
Demand Rate ◽  
Explicit Consideration ◽  
Inventory Decisions ◽  
Bad Debt

In order to stimulate demand of their product, firms generally give credit period to their customers. However, selling on credit exposes the firms to the additional dimension of bad debts expense (i.e., customer’s default). Moreover, credit period through its influence on demand becomes a determinant of inventory decisions and inventory sold on credit gets converted to accounts receivable indicating the interaction between the two. Since inventory and credit decisions are interrelated, inventory decisions must be determined jointly with credit decisions. Consequently, in this paper, a mathematical model is developed to determine inventory and credit decisions jointly. The demand rate is assumed to be a logistic function of credit period. The accounts receivable carrying cost along with an explicit consideration of bad debt expense which have been often ignored in previous models are incorporated in the present model. The discounted cash flow approach (DCF) is used to develop the model and the objective is to maximize the present value of the firm’s net profit per unit time. Finally, numerical example and sensitivity analysis have been done to illustrate the effectiveness of the proposed model.

scholarly journals Joint replenishment and credit policies under two levels of trade credit financing when demand and bad-debt loss depends upon credit period

2016 ◽  
Vol 26 (3) ◽  
pp. 279-304 ◽  
Author(s):  
K.K. Aggarawal ◽  
Arun Tyagi
Keyword(s):  
Trade Credit ◽  
Discounted Cash Flow ◽  
Credit Period ◽  
Proposed Model ◽  
Net Profit ◽  
Value Of Firm ◽  
Credit Financing ◽  
Collection Practices ◽  
Bad Debt ◽  
Credit Granting

In practice, a firm usually receives trade credit financing from its supplier on the purchase of inventory. Similarly, in order to meet competition and generate credit sales over and above cash sales, the firm also gives credit period to their customers. However, the decision of granting credit period may have a disintegrating effect on cash sales apart from generating new credit sales because some of the cash customers may switch to credit purchase. In addition, despite of the best credit granting policies and collection practices, the firm may incurs some amount of bad debt losses because a certain fraction of buyers will undoubtedly be unable to pay off their debt obligations and become bad debt loss to the firm. In this paper, using discounted cash flow (DCF) approach, a mathematical model is developed to jointly determine optimal inventory and credit policies under two levels of trade credit financing when demand and bad-debt losses are dependent on credit period. The objective of the model is to maximize the present value of firm?s net profit per unit time by jointly optimizing the replenishment interval and date-terms credit period. Numerical examples and sensitivity analysis are presented to illustrate the effectiveness of the proposed model, and the results are discussed.

Inventory and Credit Decisions Under Inflationary Conditions With Inflation Induced Bad-Debts

2018 ◽  
Vol 9 (3) ◽  
pp. 52-76
Author(s):  
K.K. Aggarwal ◽  
Arun Kumar Tyagi
Keyword(s):  
Default Risk ◽  
Time Value Of Money ◽  
Credit Period ◽  
Time Value ◽  
Joint Determination ◽  
Proposed Model ◽  
Net Profit ◽  
Inventory Decisions ◽  
Value Of Money

This article describes how a credit period, through its influence on demand, becomes a determinant of inventory decisions; therefore, inventory decisions should be determined jointly with credit decisions. Inflation and time value of money affects valuation of investments; hence their effect should not be disregarded in decision-making. Selling on credit exposes a firm to an additional dimension of default risk from customers as a result of inflation. Consequently, this article presents a mathematical model for the joint determination of optimal inventory and credit decisions for a day-terms credit-linked demand by incorporating the effects of inflation and the time value of money. It is assumed that an increase in the rate of inflation leads to an increase in bad-debts. The objective of the model is to maximize the present value of a firm's net profit per unit of time by jointly optimizing the day-terms credit period and order interval. A numerical example, sensitivity analysis, and observations are presented to illustrate the effectiveness of the proposed model.

Optimal Inventory and Credit Policies under Two Levels of Trade Credit Financing in an Inventory System with Date-Terms Credit Linked Demand

2014 ◽  
Vol 5 (4) ◽  
pp. 99-126 ◽  
Author(s):  
K.K. Aggarwal ◽  
Arun Kumar Tyagi
Keyword(s):  
Trade Credit ◽  
Credit Policy ◽  
Discounted Cash Flow ◽  
Inventory Policy ◽  
Credit Period ◽  
Systems Perspective ◽  
On Demand ◽  
Proposed Model ◽  
Net Profit ◽  
Credit Financing

Credit policy through its influence on demand indirectly affects the inventory policy which is designed to meet that demand; therefore inventory policy is interrelated with the credit policy. Consequently, they must be coordinated and should be determined simultaneously in a systems perspective. In this paper, a mathematical model is developed in a discounted cash flow (DCF) framework to jointly determine inventory and credit policies under two levels of trade credit financing in the presence of stimulating as well as disintegrating effect of credit period on demand. The objective of the model is to maximize the present value of firm's net profit per unit time by jointly optimizing the date-terms credit period and replenishment interval. Numerical example and sensitivity analysis are presented to illustrate the effectiveness of the proposed model and results are discussed.

Retailer’s Pricing and Lot Sizing Policy for Non Deteriorating Items with Constant Demand Rate Under the Condition of Permissible Delay in Payments

2012 ◽  
Vol 3 (1) ◽  
pp. 74-84
Author(s):  
R. P. Tripathi ◽  
S. S. Misra
Keyword(s):  
Cycle Time ◽  
Lot Sizing ◽  
Deteriorating Items ◽  
Lot Size ◽  
Credit Period ◽  
Eoq Model ◽  
Develop Algorithm ◽  
Net Profit ◽  
Demand Rate ◽  
Delay In Payments

This study develops an EOQ model for retailer’s price and lot size simultaneously when the supplier permits delay in payments for an order of a product whose demand rate is a constant price elastic function for non-deteriorating items. In this study, mathematical models have been discussed under two different situations, i.e., case I: The credit period is less than or equal to cycle time for setting the account; and case II: The credit period is greater than the cycle time for setting the account. Expressions for an inventory system’s net profit are derived for these two cases. The authors develop algorithm for a retailer to determine its optimal price and lot size simultaneously, when supplier offers a permissible in payments.

scholarly journals Production inventory policy under a discounted cash flow

2005 ◽  
Vol 15 (2) ◽  
pp. 289-300
Author(s):  
Chao-Ton Su ◽  
Cheng-Wang Lin
Keyword(s):  
Cash Flow ◽  
Production Scheduling ◽  
Production Systems ◽  
Simple Algorithm ◽  
Inventory Level ◽  
Discounted Cash Flow ◽  
Proposed Model ◽  
Production Inventory ◽  
Demand Rate ◽  
Holding Cost

This paper presents an extended production inventory model in which the production rate at any instant depends on the demand and the inventory level. The effects of the time value of money are incorporated into the model. The demand rate is a linear function of time for the scheduling period. The proposed model can assist managers in economically controlling production systems under the condition of considering a discounted cash flow. A simple algorithm computing the optimal production-scheduling period is developed. Several particular cases of the model are briefly discussed. Through numerical example, sensitive analyses are carried out to examine the effect of the parameters. Results show that the discount rate parameter and the inventory holding cost have a significant impact on the proposed model.

A Bi-objective Multi-Product Multi-Constraint EPQ Model in a Stochastic Environment and Partial Shortage

2020 ◽  
Vol 19 (03) ◽  
pp. 567-587
Author(s):  
Seyedeh Sanaz Mirkhorsandi ◽  
Seyed Hamid Reza Pasandideh
Keyword(s):  
Goal Attainment ◽  
Programming Model ◽  
Multi Objective ◽  
Holding Costs ◽  
Inventory Costs ◽  
Economic Production ◽  
Proposed Model ◽  
Demand Rate ◽  
Nonlinear Programming Model ◽  
Epq Model

One of the classical models for inventory control is economic production quantity (EPQ), which is widely used in industry. In this paper, an EPQ model with partial shortage is developed by considering the real world conditions, and costs related to the backorder demand are taken as fixed and time-dependent. In the proposed model, determination of the inventory cycle length, the length of positive inventory cycle and backordered demand rate are considered in shortage period. The aim of the presented research is to minimize the total inventory costs and the space required for storage products so that the stochastic and classic constraints including holding costs, lost sales, backorder, budget, total number of productions and average shortage times should be satisfied while optimizing the multi-objective problem. Presented model is a bi-objective nonlinear programming model. Then, to solve the proposed model, three multi-objective decision-making methods including Lp-metric, goal programming and goal attainment are used. Besides, numerical examples are executed in small, medium and large scales by use of GAMS software, and the performance of the methods is compared in terms of objective functions and required CPU time. Finally, sensitivity analysis is done to determine the effect of change in the main parameters of the model on the objective function value.

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