The Optimal Strategy with a Random Planning Horizon Considering Salvage of Remnant Inventories

• Main Authors: Sheng-Yu Cheng, 鄭勝裕
• Other Authors: Shy-Der Lin
• Format: Others
• Language: zh-TW
• Published: 2001
• Online Access: http://ndltd.ncl.edu.tw/handle/16393613937107829759

碩士 === 中原大學 === 數學研究所 === 89 === The basic EOQ model doesn’t take account of the time value of money. If the planning horizon is short, it may be appropriate to ignore the time value of money to simplify the decision process. However, if the planning horizon is long, the disregard of the time value of money will be questionable. From the standpoint of inventory analysis, it is clear that the basic inventory model can be improved by formulating it within the NPV (Net Present Value) framework that is based on a discounted cash flow (DCF) approach. Thompson shows how concept of capital budgeting including the present value method can be logically applied to the determination of the optimal inventory levels. In general, the NPV framework forms an important bridge between inventory analysis and the theory of finance. Usually, the effect of inflation and the time value of money is not considered explicitly in analyzing inventory systems, although the cost of capital tied up in inventories is included in the carrying cost. Trippi and Lewin examines the present value of discounted costs over an infinite horizon. Dohi, Kaio and Osaki propose the optimal inventory policies for an infinite time span taking account of time value of money in a different view point from Trippi and Lewin’s. Namely, they define the inventory holding cost per one cycle as a discounted one in continuous time. Chung and Kim also suggest that the assumption of the infinite planning horizon is not realistic and called for a new model which relaxes the assumption of the infinite planning horizon. To be more realistic, Moon and Yun develop a finite planning horizon EOQ model where the planning horizon is a random variable. In addition, they employ the DCF approach to fully recognize the time value of money in determining the optimal order quantity. The assumptions are the same as the basic EOQ model except for the following. （i）The planning horizon P follows an exponential distribution with parameter . （ii）DCF approach is adopted. That is, the time value of money is considered explicitly and interest is compounded continuously. （iii）At the end of the planning horizon, the remnant inventories, if any, have no salvage value. Basing on the above notation and assumptions, we want to find out how the optimal strategy is affected by the remnant inventories with salvage value in this research.