Economic ordering and payment policies under progressive payment schemes and time-value of money

Trade credits have received considerable attention in recent years and have become one of the most important sources of short-term funding for many companies. The paper at hand studies the optimal ordering and payment policies of a buyer assuming that the supplier offers a progressive interest scheme. The contribution to the literature is twofold. First, the different financial conditions of the companies involved are taken into account by assuming that the credit interest rate of the buyer may, but not necessarily has to, exceed the interest rate charged by the supplier. In addition, the time-value of money is considered in this scenario which is relevant when trade credit terms are valid for a long period of time and payment flows need to be evaluated by their net present value to ensure long-term profitability. The models proposed enable decision makers to improve ordering and payment decisions and the results reveal that taking into account the temporal allocation of payments, the prevailing interest relation influences replenishment policies significantly

The influence of financial conditions on optimal ordering and payment policies under progressive interest schemes

In many business-to-business transactions, the buyer is not required to pay immediately after the receipt of an order, but is instead allowed to postpone the payment to its suppliers for a certain period. In such a situation, the buyer can either settle the account at the end of the credit period or authorize the payment later, usually at the expense of interest that is charged by the supplier on the outstanding balance. Some payment terms, which are often referred to as trade credit contracts, contain progressive interest charges. In such cases, the supplier offers a sequence of credit periods, where the interest rate that is charged on the outstanding balance usually increases from period to period. If a buyer faces a progressive trade credit scheme, various options for settling the unpaid balance exist, where the financial impact of each option depends on the current credit interest structure and the alternative investment conditions. This paper studies the influence of different financial conditions in terms of alternative investment opportunities and credit interest structure on the optimal ordering and payment policies of a buyer on the condition that the supplier provides a progressive interest scheme. For this purpose, mathematical models are developed and analyzed

A note on: Optimal ordering policy for stock-dependent demand under progressive payment scheme

In a recent paper, Soni and Shah [Soni, H., Shah, N. H. (2008). Optimal ordering policy for stock-dependent demand under progressive payment scheme. European Journal of Operational Research 184(1), 91–100] developed a model to find the optimal ordering policy for a retailer with stock-dependent demand and a supplier offering a progressive payment scheme to the retailer. This note corrects some errors in the formulation of the model of Soni and Shah. It also extends their work by assuming that the credit interest rate of the retailer may exceed the interest rate charged by the supplier. Numerical examples illustrate the benefits of these modifications

Optimal ordering policies when the supplier provides a progressive interest scheme

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Impact of economic inventory and payment policies on working capital optimization in purchase-to-pay processes

The thesis at hand includes eight chapter and is structured as follows: Following a brief introduction of the topic in Chapter 1, Chapter 2 provides a survey of literature reviews in the area of lot sizing. Its intention is to show which streams of research emerged from Harris' seminal lot size model, and which major achievements have been accomplished in the respective areas. It first develops the methodology and then descriptively analyzes the sample. Subsequently, a content-related classification scheme for lot sizing models is developed, and the reviews contained in the sample are discussed in light of this classification scheme. The analysis reveals that various extensions of Harris' lot size model have been developed over the years, such as lot sizing models that include multi-stage inventory systems, incentives, or productivity issues. The aims of such a tertiary study are the following: firstly, it helps primary researchers to position their own work in the literature, to reproduce the development of different types of lot sizing problems, and to find starting points if they intend to work in a new research direction. Secondly, the study identifies several topics that offer opportunities for future secondary research apart from the ones covered in this thesis. In the presence of a progressive payment scheme, the supplier offers a sequence of credit periods, where the interest rate that is charged on the outstanding balance usually increases from period to period. If a buyer faces a progressive trade credit scheme, various options for settling the unpaid balance exist, where the financial impact of each option depends on the current credit interest structure and the alternative investment conditions. Chapter 3 takes up this issue by generalizing the trade credit inventory model with progressive interest scheme by considering a) the case where the credit interest rate of the buyer may (but not necessarily has to) exceed the interest rate charged by the supplier, b) where the buyer has the option to settle the outstanding balance continuously within the credit periods, c) where compound interest accrues at the retailer, and d) bank loans are available as a substitute for the trade credit. In addition, some inaccuracies in earlier formulations of the effective interest cost are corrected. Subsequently, Chapter 4 studies and extends solution algorithms for deriving the optimal ordering and payment policies of a retailer on the condition that the supplier provides a progressive interest scheme. Based on the finding that the piecewise total cost functions are convex but not necessarily continuous, a modified solution algorithm is developed and collated with existing ones in the course of a simulation experiment. The results indicate that the modified algorithm can locate all optimal solutions and outperforms existing approaches. Chapters 5 and 6 further extend the scope of the analysis by considering models aimed at finding ordering and payment policies for a buyer with stock-dependent demand and a supplier that offers a progressive payment scheme. Such a setting can frequently be observed in retail stores where the demand rate is usually influenced by the amount of inventories displayed on the shelves. These chapters correct some errors in the formulation of previously published approaches and extend those works by assuming that the credit interest rate of the retailer may exceed the interest rate charged by the supplier. Several numerical examples illustrate the benefits of the suggested modifications. The results also illustrate the close linkage between operational and financial aspects in supply chain management, which should be considered by employing more integrated planning approaches. As decisions on the working capital structure of the company defined by an appropriate inventory and payment policy significantly influence future cash-flows and thus the temporal allocation of payments, they should also be evaluated in terms of long-term profitability by considering their net present value or equivalent measures. Especially in situations where trade credit agreements are used over a long period of time and where discount rates are varying, explicitly considering the time-value of money in inventory models helps to make them more realistic. This aspect is considered in Chapter 7 that studies the optimal ordering and payment policies of a buyer assuming that the supplier offers a progressive interest scheme. The models proposed enable decision makers to improve decision making and the results reveal that taking into account the temporal allocation of payments, the prevailing interest relation influences replenishment policies significantly. Finally, Chapter 8 studies a buyer sourcing a product from multiple suppliers under stochastic demand. The buyer uses a (Q,s) continuous review, reorder point, order quantity inventory control system to determine the size and timing of orders. Lead time is assumed to be deterministic and to vary linearly with the lot size, wherefore lead time and the associated stock-out risk may be influenced both by varying the lot size and the number of contracted suppliers. After presenting several mathematical models for a multiple supplier single buyer integrated inventory problem with stochastic demand and variable lead time, the impact of different delivery structures on the risk of incurring a stock-out during lead time and the required inventories is analyzed

A note on optimal ordering policies when the supplier provides a progressive interest scheme

Goyal et al. [Goyal, S.K., Teng, J.T., Chang, C.T., 2007. Optimal ordering policies when the supplier provides a progressive interest scheme. European Journal of Operational Research 179, 404-413] explore optimal ordering policies when the supplier provides a progressive interest scheme. The main purpose of this paper is fourfold: (1) This paper simplifies the total relevant cost per year Z(T) of Goyal et al. (2007) such that we can locate the optimal solutions of Z(T) by an easier way. (2) Goyal et al. (2007) use an algebraic approach to search for the optimal solution of Z(T). Their solution procedures ignore the explorations of the functional behavior of Z(T) such that their proofs fill shortcomings. This paper overcomes those shortcomings and presents a correct solution procedure for Goyal et al. (2007). (3) This paper demonstrates that the solution procedure in this paper can locate all optimal solutions of Z(T), however, that of Goyal et al. (2007) can only locate partially optimal solutions of Z(T). (4) Numerical examples reveal that Theorems 1(6) and 2(5) in Goyal et al. (2007) are not necessarily true, in general.Finance Inventory EOQ Progressive interest charge

Integrasi Rantai Pasokan Tiga Eselon (Supplier-Manufacturer-Distributor-Drop Shipper) Dengan Permissible Delay In Payment Dan Kontrak Pinalti

Manajemen rantai pasokan (supply chain management - SCM) harus dipertimbangkan dalam perusahaan dengan tujuan meningkatkan keberlanjutan dan daya saing. SCM dijalankan untuk mengintegrasikan perusahaan-perusahaan dalam rantai pasokan dengan cara mengkoordinasikan aliran bahan, informasi, dan keuangan. Salah satu cara perusahaan dalam meningkatkan daya saing rantai pasokan adalah dengan melakukan koordinasi. Keringanan penundaan pembayaran selama jangka waktu tertentu, yang lebih populer dengan sebutan delay in payment merupakan salah satu cara koordinasi dengan memperbolehkan pelanggan menunda pembayaran kepada vendor tanpa beban bunga selama periode tertentu. Dalam sistem rantai pasokan, pemain drop-shipping bukanlah hal yang baru di era sekarang ini. Pada model bisnis drop-shipping, supplier akan memegang persediaan dan juga akan melaksanakan layanan distribusi fisik atas nama drop-shipper. Sehingga drop-shipper hanya berfokus pada penjualan, sedangkan proses fisik tetap akan ditangani oleh supplier mereka. Umumnya drop-shipper memiliki informasi permintaan pelanggan yang lebih baik daripada distributor. Tidak jarang drop-shipper mengirimkan perkiraan permintaan yang jumlahnya lebih dari estimasi mereka. Kontribusi dalam penelitian ini akan difokuskan pada integrasi dari rantai pasokan tiga eselon, yaitu supplier, manufaktur, distributor, dan drop-shipper. Akan digunakan pertimbangan koordinasi delay in payment pada eselon 1 dan 2, juga kontrak pinalti pada eselon 3. Permasalahan pada penelitian ini akan dimodelkan dan diselesaikan kedalam beberapa skenario kasus yang dapat merepresentasikan kondisi sistem nyata rantai pasokan yang diteliti. Sehingga dapat mengidentifikasi skenario terbaik dari setiap pemain dalam rantai pasokan. Kemudian dilakukan analisa sensitivitas pada beberapa variabel yang dianggap signifikan terhadap perubahan total biaya rantai pasokan. Melalui hasil yang diperoleh, dapat disimpulkan koordinasi dengan pertimbangan delay in payment berhasil mengintegrasikan beberapa pemain dalam rantai pasokan. Begitu juga pada koordinasi dengan media kontrak pinalti dapat mengkoordinasikan pemain dalam rantai pasokan sekaligus menjaga profit dari distributor dan drop-shipper. ======================================================================================================================== Supply chain management (SCM) have to be considered to improve the sustainable and competitiveness. SCM executed to integrating any companies on the supply chain in a way of coordinating the flow of goods, informations, and financial. Permissible delay in payment is one of the coordination way with allowing the costumers delay the payments to vendor in some certain periods without any interest charges. In the supply chain system, drop-shipping player already familiar in this era. In drop-shipping internet retailing, supplier will hold supplies and also carry out physical distribution service on behalf of drop-shipper. Drop-shipper will just focus on selling, in the other hand, their supplier will be responsible for physical process. Generally, drop-shipper have informations on the customer demands better than distributor. But, it is also unrare when the drop-shipper send the estimation of demands which bigger than their own estimation in order to maximize their own interest, so they hope supplies of distributor will always enough to accommodate their demands. Contributions in this research will be focused on integration of three echelons supply chain, which are supplier, manufacture, distributor, and drop-shipper. With considering delay in payment on first and second echelons, and also the contract penalty on third echelon. The problem on this research will be modeled in some kind of cases which can represent the problem of real supply chain system. Sensitivity analysis will be done on certain significant variables toward the changes of total supply chain cost. Coordination with delay in payment success to integrate supply chain. Contract penalty plan success to maintain the profit of distributor and drop-shipper