Article ID: | iaor20072671 |
Country: | United Kingdom |
Volume: | 13 |
Issue: | 6 |
Start Page Number: | 515 |
End Page Number: | 528 |
Publication Date: | Nov 2006 |
Journal: | International Transactions in Operational Research |
Authors: | Ouyang Liang-Yuh, Teng Jinn-Tsair, Chen Liang-Ho |
Keywords: | manufacturing industries |
In this paper, we extend Goyal's economic order quantity (EOQ) model to allow for the following four important facts: (1) the manufacturer's selling price per unit is necessarily higher than its unit cost, (2) the interest rate charged by a bank is not necessarily higher than the manufacturer's investment return rate, (3) the demand rate is a downward-sloping function of the price, and (4) an economic production quantity (EPQ) model is a generalized EOQ model. We then establish an appropriate EPQ model accordingly, in which the manufacturer receives the supplier trade credit and provides the customer trade credit simultaneously. As a result, the proposed model is in a general framework that includes numerous previous models as special cases. Furthermore, we provide an easy-to-use closed-form optimal solution to the problem for any given price. Finally, we develop an algorithm for the manufacturer to determine its optimal price and lot size simultaneously.