An economic order quantity model under two-level partial trade credit for time varying deteriorating items

Abstract

ABSTRACTIn general, supplier/retailer frequently offers trade credit to its credit-risk downstream member in order to stimulate their respective sales. This trade credit may either be full or partial, depending upon the past profile of downstream members. Partial trade credit may be offered by supplier/retailer to their credit-risk downstream member who must pay a portion of the purchase amount at the time of placing an order and then receives a permissible delay on the rest of the outstanding amount to avoid non-payment risks. In addition, many products deteriorate continuously and cannot be sold after their expiration dates. In this paper, a supplier–retailer–customer chain system is developed in which supplier, as well as retailer, offers partial trade credit to the subsequent credit-risk downstream member; deterioration rate is non-decreasing over time and near 100% particularly close to its expiration date, and demand rate is a credit period-dependent and default risk is incorporated. This paper demonstrates that the retailer's optimal credit period and replenishment time not only exist, but also are unique. We commit that our proposed model is a general theoretical model of the many previous models. Lastly, via numerical examples, sensitivity analysis illustrates the influence of key model parameters.