A Profit Maximization Inventory Model: Stock-Linked Demand Considering Salvage Value with Tolerable Deferred Payments

Abstract

Every business owner wishes that all sales were made on a cash basis, but in a cutthroat market, it is not always feasible. To entice buyers to purchase their goods, dealers may need to offer sales with credit terms. Unfortunately, selling with deferred payment conditions introduces a completely new facet of business management. Additionally, the salvage amount or value is significant for determining depreciation and can have an impact on the company’s overall depreciable amount used in its depreciation schedule. This study looks at an inventory model with the best possible pricing and ordering policy for retailers. Research is derived from when inventory is subjected to a constant deterioration rate and associated with appropriate salvage value. A perishable payments strategy inventory model is created, with the demand as a function of the stock level as well as selling price. Manufacturers provide to the retailer a tolerable deferred payment scheme to repay against the purchase products. That the cycle length and order size will rise under tolerable deferred period is refuted. The study’s goal is to determine the optimal replenishment cycle length and selling price to optimize retailer’s net income. With reference to cycle length and selling price, we developed an algorithm with a numerical example to optimize the net profit. The results are mathematically proven, and data is provided to validate the aforementioned model. Numerical examples are used to validate the model, and sensitivity analysis was performed. Using mathematical tools, a 3D graph will be used to demonstrate the concavity of the objective function.