Multi-item, economic order quantity model with permissible delay in payments and a budget constraint

This paper investigates the optimal replenishment policy for multi-item ordering under the conditions of permissible delay in payment, a budget constraint and permissible partial payment at a penalty. Such conditions exist in the use of purchase cards to order merchandise directly from the supplier. The paper presents mathematical models and closed form solutions for three situations – permissible delay is negative (payment made before receipt of good), is less than the replenishment interval and is greater than the replenishment interval. The analyses indicate that it is more economical for the purchaser to make entire payments even when the interest earned is greater than the interest charged. [Received 06 April 2007; Revised 02 December 2007; Accepted 23 January 2008]