An EOQ Model with Ordering Cost inclusive of a Freight Cost under Condition of Permissible Delay in Payments

As a means of price differentiation, some suppliers may allow credit periods to their customers to increase the demand for their products. Since credit transactions permitted from the supplier may be applied as an effective method to reduce inventory holding costs, it has a positive effect on the customer s order quantity. Also, in many common business transactions, the customer pays the freight cost for the transportation of the order and therefore, the customer s ordering cost consists of a fixed cost and the freight costs that depend on the order quantity. From this point of view, this paper deals with the problem related to decision making of the customer s EOQ (economic order quantity) under condition of permissible delay in payments. It is also assumed that the customer s order cost consists of a fixed cost and the freight costs which constitute a fixed charge for each extra unit load required. We are able to develop a solution algorithm from the properties of an optimal solution, and the validity of the algorithm can be shown through an example problem.