This paper investigates the effect of permissible delay in payments on ordering policies in a periodic review (s, S) inventory model with stochastic demand. A new mathematical model is developed, which is an extension to that of Veinott and Wagner, who applied renewal theory and stationary probabilistic analysis to determine the equivalent average cost per review period. The performance of the model is validated using a custom-built simulation program. In addition, two distribution-free heuristic methods of reasonable accuracy develop approximate optimal policies for practical purposes based only on the mean and the standard deviation of the demand. Numerical examples are presented with results discussed.
