RETURN ON INVESTMENT AS A CRITERION FOR INVENTORY MODELS

Roger G. Schroeder, Ramakrishnan Krishnan

Research output: Contribution to journalArticle

30 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)697-704
Number of pages8
JournalDecision Sciences
Volume7
Issue number4
DOIs
StatePublished - Oct 1976

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