Please use this identifier to cite or link to this item: http://hdl.handle.net/1942/18189
Title: Adapting inventory models for handling various payment structures using net present value equivalence analysis
Authors: BEULLENS, Patrick 
JANSSENS, Gerrit 
Issue Date: 2014
Publisher: ELSEVIER SCIENCE BV
Source: INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS, 157, p. 190-200
Abstract: Classic inventory models use average cost functions. It is generally accepted that these models should account for the time value of money. They do so not by considering the timing of cash-flows, but by including opportunity costs. The Net Present Value (NPV) framework has long been used to compare these models with. We formalise NPV Equivalence Analysis (NPVEA) under various payment structures, and apply it to a few classic inventory models. While taking the linear approximation is typically part of the process to find equivalence, the essence is to disregard the parameters of a classic inventory model but instead start from cash-flow structures between firms. It is demonstrated how this leads to different plausible interpretations of, or variations to, classic inventory models, in particular for payment structures that differ from conventional assumptions. We identify situations with negative holding costs, which indicates that more features from the real world must be added into the decision model. We illustrate that in addition to capital costs, firms can enjoy capital rewards. These rewards may not always affect the firm's inventory decisions, but are in general useful for finding the impact of changes to various parameters on the firm's future profits.
Notes: [Beullens, Patrick] Univ Southampton, Southampton SO17 1BJ, Hants, England. [Janssens, Gerrit K.] Univ Southampton, Southampton Sch Management, Southampton SO17 1BJ, Hants, England. [Janssens, Gerrit K.] Hasselt Univ, Res Grp Logist, B-3590 Diepenbeek, Belgium.
Keywords: Deterministic inventory theory; Net present value; Payment structure; Economic order quantity; Economic production quantity; Philosophy of modelling;deterministic inventory theory; net present value; payment structure; economic order quantity; economic production quantity; philosophy of modelling
Document URI: http://hdl.handle.net/1942/18189
ISSN: 0925-5273
e-ISSN: 1873-7579
DOI: 10.1016/j.ijpe.2013.09.013
ISI #: 000345734100021
Rights: © 2013 Elsevier B.V. All rights reserved.
Category: A1
Type: Journal Contribution
Validations: ecoom 2016
Appears in Collections:Research publications

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