Template-Type: ReDIF-Paper 1.0
Author-Name: van der Laan, E.A.
Author-Name-Last: van der Laan
Author-Name-First: Erwin
Author-Person: pva64
Author-Name: Teunter, R.H.
Author-Name-Last: Teunter
Author-Name-First: Ruud
Title: Average Costs versus Net Present Value
Abstract: While the net present value (NPV) approach is widely accepted as the right framework for studying production and inventory control systems, average cost (AC) models are more widely used. For the well known EOQ model it can be verified that (under certain conditions) the AC approach gives near optimal results, but does this also hold for more complex systems? In this paper it is argued that for more complex systems, like multi-source systems, one has to be extremely careful in applying the AC approach on intuition alone, even when these systems are deterministic. Special attention is given to a two-source inventory system with manufacturing, remanufacturing, and disposal, and it is shown that for this type of models there is a considerable gap between the AC approach and the NPV approach.
Creation-Date: 2000-11-06
File-URL: https://repub.eur.nl/pub/53/erimrs20001106105334.pdf
File-Format: application/pdf
Series: RePEc:ems:eureri
Number: ERS-2000-47-LIS
Classification-JEL: M, M11, R4
Keywords: average costs, holding costs, inventory control, net present value, remanufacturing
Handle: RePEc:ems:eureri:53