Lot sizing with permissible delay in payments and entropy cost

Although the lot size problem (i.e., the economic order quantity model) has been widely accepted and used by researchers and practitioners, it has also been criticized by others on the grounds that not accounting for some of the hidden costs in inventory systems often lead to poor results. This paper postulates that estimating these hidden costs may be attained by applying the first and second laws of thermodynamics to reduce system entropy (or disorder) at a cost. The applicability of this concept is demonstrated for the economic lot size problem with permissible delay in payments. Mathematical models are developed with numerical examples provided and results discussed. 2006 Elsevier Ltd. All rights reserved.