Deteriorating inventory model with finite production rate and two-level of credit financing for stochastic demand

Abstract

An inventory model for deteriorating items with finite production rate and stochastic demand rate is developed when the supplier offers delay period to the retailer for due payment against purchases and the retailer in turn extends the trade credit offer to its customers. This policy of passing on of the credit period is well known as two-level of credit financing. Items in the system follow stochastic demand behavior that are produced with finite production rate and subjected to constant rate of deterioration. The model is developed with an objective to minimize total expected cost of retailer as it is assumed to be a dominant player in the supply chain. Necessary and sufficient conditions for existence and uniqueness of the optimal solution are obtained and established to minimize the retailer’s total expected cost. Results obtained are validated with the help of numerical examples. Sensitivity analysis of various parameters is carried out to gain meaningful managerial insights.