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Impact of economic inventory and payment policies on working capital optimization in purchase-to-pay processes

Ries, Jörg-Martin (2018):
Impact of economic inventory and payment policies on working capital optimization in purchase-to-pay processes.
Darmstadt, Technische Universität, [Online-Edition: http://tuprints.ulb.tu-darmstadt.de/7663],
[Ph.D. Thesis]

Abstract

The thesis at hand includes eight chapter and is structured as follows: Following a brief introduction of the topic in Chapter 1, Chapter 2 provides a survey of literature reviews in the area of lot sizing. Its intention is to show which streams of research emerged from Harris' seminal lot size model, and which major achievements have been accomplished in the respective areas. It first develops the methodology and then descriptively analyzes the sample. Subsequently, a content-related classification scheme for lot sizing models is developed, and the reviews contained in the sample are discussed in light of this classification scheme. The analysis reveals that various extensions of Harris' lot size model have been developed over the years, such as lot sizing models that include multi-stage inventory systems, incentives, or productivity issues. The aims of such a tertiary study are the following: firstly, it helps primary researchers to position their own work in the literature, to reproduce the development of different types of lot sizing problems, and to find starting points if they intend to work in a new research direction. Secondly, the study identifies several topics that offer opportunities for future secondary research apart from the ones covered in this thesis.

In the presence of a progressive payment scheme, the supplier offers a sequence of credit periods, where the interest rate that is charged on the outstanding balance usually increases from period to period. If a buyer faces a progressive trade credit scheme, various options for settling the unpaid balance exist, where the financial impact of each option depends on the current credit interest structure and the alternative investment conditions. Chapter 3 takes up this issue by generalizing the trade credit inventory model with progressive interest scheme by considering a) the case where the credit interest rate of the buyer may (but not necessarily has to) exceed the interest rate charged by the supplier, b) where the buyer has the option to settle the outstanding balance continuously within the credit periods, c) where compound interest accrues at the retailer, and d) bank loans are available as a substitute for the trade credit. In addition, some inaccuracies in earlier formulations of the effective interest cost are corrected.

Subsequently, Chapter 4 studies and extends solution algorithms for deriving the optimal ordering and payment policies of a retailer on the condition that the supplier provides a progressive interest scheme. Based on the finding that the piecewise total cost functions are convex but not necessarily continuous, a modified solution algorithm is developed and collated with existing ones in the course of a simulation experiment. The results indicate that the modified algorithm can locate all optimal solutions and outperforms existing approaches.

Chapters 5 and 6 further extend the scope of the analysis by considering models aimed at finding ordering and payment policies for a buyer with stock-dependent demand and a supplier that offers a progressive payment scheme. Such a setting can frequently be observed in retail stores where the demand rate is usually influenced by the amount of inventories displayed on the shelves. These chapters correct some errors in the formulation of previously published approaches and extend those works by assuming that the credit interest rate of the retailer may exceed the interest rate charged by the supplier. Several numerical examples illustrate the benefits of the suggested modifications. The results also illustrate the close linkage between operational and financial aspects in supply chain management, which should be considered by employing more integrated planning approaches.

As decisions on the working capital structure of the company defined by an appropriate inventory and payment policy significantly influence future cash-flows and thus the temporal allocation of payments, they should also be evaluated in terms of long-term profitability by considering their net present value or equivalent measures. Especially in situations where trade credit agreements are used over a long period of time and where discount rates are varying, explicitly considering the time-value of money in inventory models helps to make them more realistic. This aspect is considered in Chapter 7 that studies the optimal ordering and payment policies of a buyer assuming that the supplier offers a progressive interest scheme. The models proposed enable decision makers to improve decision making and the results reveal that taking into account the temporal allocation of payments, the prevailing interest relation influences replenishment policies significantly.

Finally, Chapter 8 studies a buyer sourcing a product from multiple suppliers under stochastic demand. The buyer uses a (Q,s) continuous review, reorder point, order quantity inventory control system to determine the size and timing of orders. Lead time is assumed to be deterministic and to vary linearly with the lot size, wherefore lead time and the associated stock-out risk may be influenced both by varying the lot size and the number of contracted suppliers. After presenting several mathematical models for a multiple supplier single buyer integrated inventory problem with stochastic demand and variable lead time, the impact of different delivery structures on the risk of incurring a stock-out during lead time and the required inventories is analyzed.

Item Type: Ph.D. Thesis
Erschienen: 2018
Creators: Ries, Jörg-Martin
Title: Impact of economic inventory and payment policies on working capital optimization in purchase-to-pay processes
Language: English
Abstract:

The thesis at hand includes eight chapter and is structured as follows: Following a brief introduction of the topic in Chapter 1, Chapter 2 provides a survey of literature reviews in the area of lot sizing. Its intention is to show which streams of research emerged from Harris' seminal lot size model, and which major achievements have been accomplished in the respective areas. It first develops the methodology and then descriptively analyzes the sample. Subsequently, a content-related classification scheme for lot sizing models is developed, and the reviews contained in the sample are discussed in light of this classification scheme. The analysis reveals that various extensions of Harris' lot size model have been developed over the years, such as lot sizing models that include multi-stage inventory systems, incentives, or productivity issues. The aims of such a tertiary study are the following: firstly, it helps primary researchers to position their own work in the literature, to reproduce the development of different types of lot sizing problems, and to find starting points if they intend to work in a new research direction. Secondly, the study identifies several topics that offer opportunities for future secondary research apart from the ones covered in this thesis.

In the presence of a progressive payment scheme, the supplier offers a sequence of credit periods, where the interest rate that is charged on the outstanding balance usually increases from period to period. If a buyer faces a progressive trade credit scheme, various options for settling the unpaid balance exist, where the financial impact of each option depends on the current credit interest structure and the alternative investment conditions. Chapter 3 takes up this issue by generalizing the trade credit inventory model with progressive interest scheme by considering a) the case where the credit interest rate of the buyer may (but not necessarily has to) exceed the interest rate charged by the supplier, b) where the buyer has the option to settle the outstanding balance continuously within the credit periods, c) where compound interest accrues at the retailer, and d) bank loans are available as a substitute for the trade credit. In addition, some inaccuracies in earlier formulations of the effective interest cost are corrected.

Subsequently, Chapter 4 studies and extends solution algorithms for deriving the optimal ordering and payment policies of a retailer on the condition that the supplier provides a progressive interest scheme. Based on the finding that the piecewise total cost functions are convex but not necessarily continuous, a modified solution algorithm is developed and collated with existing ones in the course of a simulation experiment. The results indicate that the modified algorithm can locate all optimal solutions and outperforms existing approaches.

Chapters 5 and 6 further extend the scope of the analysis by considering models aimed at finding ordering and payment policies for a buyer with stock-dependent demand and a supplier that offers a progressive payment scheme. Such a setting can frequently be observed in retail stores where the demand rate is usually influenced by the amount of inventories displayed on the shelves. These chapters correct some errors in the formulation of previously published approaches and extend those works by assuming that the credit interest rate of the retailer may exceed the interest rate charged by the supplier. Several numerical examples illustrate the benefits of the suggested modifications. The results also illustrate the close linkage between operational and financial aspects in supply chain management, which should be considered by employing more integrated planning approaches.

As decisions on the working capital structure of the company defined by an appropriate inventory and payment policy significantly influence future cash-flows and thus the temporal allocation of payments, they should also be evaluated in terms of long-term profitability by considering their net present value or equivalent measures. Especially in situations where trade credit agreements are used over a long period of time and where discount rates are varying, explicitly considering the time-value of money in inventory models helps to make them more realistic. This aspect is considered in Chapter 7 that studies the optimal ordering and payment policies of a buyer assuming that the supplier offers a progressive interest scheme. The models proposed enable decision makers to improve decision making and the results reveal that taking into account the temporal allocation of payments, the prevailing interest relation influences replenishment policies significantly.

Finally, Chapter 8 studies a buyer sourcing a product from multiple suppliers under stochastic demand. The buyer uses a (Q,s) continuous review, reorder point, order quantity inventory control system to determine the size and timing of orders. Lead time is assumed to be deterministic and to vary linearly with the lot size, wherefore lead time and the associated stock-out risk may be influenced both by varying the lot size and the number of contracted suppliers. After presenting several mathematical models for a multiple supplier single buyer integrated inventory problem with stochastic demand and variable lead time, the impact of different delivery structures on the risk of incurring a stock-out during lead time and the required inventories is analyzed.

Place of Publication: Darmstadt
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Betriebswirtschaftliche Fachgebiete
01 Department of Law and Economics > Betriebswirtschaftliche Fachgebiete > Fachgebiet Produktion und Supply Chain Management
01 Department of Law and Economics > Betriebswirtschaftliche Fachgebiete > Fachgebiet Industrielles Management
Date Deposited: 12 Aug 2018 19:55
Official URL: http://tuprints.ulb.tu-darmstadt.de/7663
URN: urn:nbn:de:tuda-tuprints-76637
Referees: Glock, Prof. Dr. Christoph and Bogaschewsky, Prof. Dr. Ronald
Refereed / Verteidigung / mdl. Prüfung: 7 May 2018
Alternative Abstract:
Alternative abstract Language
Die vorliegende Dissertation umfasst acht Kapitel und ist wie folgt strukturiert: Nach einer kurzen Einführung in die generelle Thematik in Kapitel 1 folgt in Kapitel 2 im Rahmen eines strukturierten Literaturüberblickes eine Übersicht über den aktuellen Stand der Forschung zu Bestands- bzw. Losgrößenmodelle. Dies dient neben der Einordnung des Beitrages auch der Verdeutlichung der unterschiedlichen Strömungen innerhalb des Forschungsgebietes sowie deren Relevanz für Forschung und Praxis. Zunächst werden in diesem Abschnitt die methodischen Grundlagen der strukturierten Literaturanalysen diskutiert gefolgt von einer deskriptiven Auswertung des Literatursamples. Anschließend wird ein inhaltsbezogenes Klassifikationsschema für Bestands- bzw. Losgrößenmodelle entwickelt und die im finalen Literatursample identifizierten Beiträge werden im Kontext dieses Klassifikationsschemas diskutiert. Wie die Analyse zeigt, sind im Laufe der Jahre verschiedene Erweiterungen des grundlegenden Losgrößenmodells von Harris vorgenommen worden. Dies beinhaltet beispielsweise die Koordination in mehrstufigen Bestandssystemen sowie die Berücksichtigung von möglichen Anreizsystemen. Beide Themenkomplexe werden nachfolgend wieder aufgegriffen. Zunächst fokussiert sich der Beitrag auf die Identifikation optimaler Bestell- und Zahlungspolitiken bei gegebenen Lieferantenkrediten. Da im Rahmen von progressiv ausgestalteten Zinsvereinbarungen in Lieferantenkrediten der innerhalb des Zahlungsziels zu berücksichtigende Zinssatz von Periode zu Periode ansteigt, bieten sich dem Debitor in dieser Situation unterschiedliche Optionen, die offenen Rechnungen zu begleichen, wobei die finanziellen Auswirkungen jeder Option von der aktuellen Zinsstruktur und den alternativen Investitionsbedingungen abhängen. Kapitel 3 greift diese Problematik auf, indem ein Bestandsmodell unter Berücksichtigung von Lieferantenkrediten mit progressiven Zinsschema erweitert wird um a) den Fall, dass der Kreditzins des Käufers den vom Lieferanten in Rechnung gestellten Zinssatz überschreiten kann, b) die Möglichkeit des Käufers, den ausstehenden Saldo innerhalb der Kreditlaufzeiten fortlaufend zu tilgen, c) die Berücksichtigung von Zinseszinsen und d) die potenzielle Substitution von Lieferantenkrediten durch alternative Bankkredite. Anschließend werden in Kapitel 4 verschiedene Lösungsalgorithmen zur Ableitung der optimalen Bestell- und Zahlungspolitik des Käufers untersucht und erweitert. Basierend auf der Erkenntnis, dass die abschnittsweise definierte Gesamtkostenfunktion konvex, aber nicht notwendigerweise kontinuierlich ist, wird zunächst ein modifizierter Lösungsalgorithmus entwickelt und anschließend im Verlauf eines Simulationsexperiments mit in der Literatur diskutierten Algorithmen verglichen. Die Ergebnisse zeigen, dass der modifizierte Algorithmus alle globalen Optima lokalisieren und damit die vorhandenen Ansätze in Bezug auf die Lösungsqualität verbessern kann. Die Kapitel 5 und 6 erweitern anschließend den Umfang der Analyse um die Entwicklung von optimalen Bestell- und Zahlungspolitiken unter Berücksichtigung einer bestandsabhängigen Endkundennachfrage. Eine solche Problematik lässt sich häufig im Einzelhandel beobachten, wo die Nachfrage normalerweise durch die in den Regalen ausliegenden Warenbestände beeinflusst wird. Die Ergebnisse verdeutlichen neben der durch die eingeführten Erweiterungen gestiegene Praxistauglichkeit auch die enge Verknüpfung zwischen operativen und finanziellen Aspekten des Supply Chain Managements, die durch den Einsatz integrierter Planungsansätze berücksichtigt werden kann. Nachfolgend wird die Betrachtung zudem um die Verwendung des Barwertkalküls erweitert. Da Entscheidungen über die Working-Capital-Struktur eines Unternehmens, im vorliegenden Fall definiert durch die optimale Bestands- und Zahlungspolitik, die zukünftigen Cashflows und damit die zeitliche Allokation von Zahlungen maßgeblich beeinflussen, sollten sie auch hinsichtlich ihrer langfristigen Rentabilität unter Berücksichtigung des Kapitalwerts bewertet werden. Insbesondere in Situationen, in denen Lieferantenkredite über einen langen Zeitraum hinweg mit variierenden Zinssätzen verwendet werden, hilft die explizite Berücksichtigung des Kapitalwertes, die Planung realistischer zu gestalten. Dieser Aspekt wird in Kapitel 7 eingehender behandelt, welches die optimalen Bestell- und Zahlungspolitiken eines Käufers unter Minimierung des Barwertes aller entscheidungsrelevanten Kosten untersucht. Schlussendlich wird in Kapitel 8 ein weiterer Aspekt aufgegriffen und ein integriertes Bestandsmodell für den Fall eines multi-sourcing Szenarios unter stochastischer Nachfrage entwickelt. Der Käufer verwendet dabei eine (Q,s) Lagerhaltungspolitik zur Bestimmung der optimalen Bestellmengen und -zeitpunkte. Etwaige Lieferzeiten werden als deterministisch, aber von der Bestellmenge abhängig angenommen, weshalb die effektive Lieferzeit und das damit verbundene Ausfallrisiko sowohl durch die Variation der Losgröße als auch der Anzahl der Vertragslieferanten beeinflusst werden kann. Nach der Entwicklung entsprechender Entscheidungsmodelle für dieses sogenannte Multi-Vendor-Single-Buyer-Problem mit stochastischer Nachfrage und variabler Durchlaufzeit wird die Auswirkung verschiedener Lieferstrukturen auf das Lagerunterdeckungsrisik, die erforderlichen Lagerbestände und die damit verbundenen Lager- und Bestellkosten untersucht.German
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