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RETURN ON INVESTMENT AS A CRITERION FOR INVENTORY MODELS
Author(s) -
Schroeder Roger G.,
Krishnan Ramakrishnan
Publication year - 1976
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1976.tb00713.x
Subject(s) - maximization , profit maximization , minification , return on investment , inventory investment , computer science , profit (economics) , investment (military) , economic order quantity , mathematical optimization , operations research , economics , econometrics , microeconomics , mathematics , business , supply chain , marketing , politics , political science , law
In the past most inventory formulations have utilized cost minimization or profit maximization as an optimizing criterion. When viewed from the standpoint of the owner or investor, maximizing the return on investment (ROI) is an appropriate criterion for many types of inventories. This paper proposes ROI as a criterion for inventory models and derives optimal reorder rules for some common assumptions. An economic order quantity that differs greatly from the traditional formulas is discussed. The paper also enumerates the conditions under which ROI is an appropriate criterion and contrasts it to the traditional cost minimization and profit maximization criteria.