Abstract
In order to attract more customers, it is a common practice for retailers to provide advance sales, for example, Maxim’s Bakery in Hong Kong, Amazon.com, Movies Unlimited and Toys R Us. Similarly, suppliers often allow their retailers a permissible delay in payment in order to increase sales. Advance sales and trade credit policies provide numerous benefits for companies, including gaining additional discriminative customers and increased profit due to interest earned from payments received from committed customers prior to the start of the regular selling period. This article establishes an inventory model for retailers who simultaneously receive a permissible delay in payments from suppliers while offering advance sales to customers. We first present the model and then provide a simple method of obtaining the optimal order quantity and advance sales discount rate which achieves the maximum total profit per unit of time for the retailer. Finally, several numerical examples are used to illustrate the procedure. Key words: Inventory, advance sales, trade credit, advance sales discount rate.
Highlights
Permissible delay is a common phenomenon in retailing, where a supplier permits the retailer a fixed time period to settle the total amount owed
This article establishes an inventory model for retailers who simultaneously receive a permissible delay in payments from suppliers while offering advance sales to customers
Chang et al (2009b) formulated an integrated vendor–buyer inventory model with retail price sensitive demand, where the credit terms are linked to the order quantity
Summary
Permissible delay is a common phenomenon in retailing, where a supplier permits the retailer a fixed time period to settle the total amount owed. Ouyang et al (2006) developed a general EOQ model with trade credit for a retailer to determine the optimal shortage interval and replenishment cycle. Goyal et al (2007) introduced a new concept where the supplier charges the retailer progressive interest rates if the retailer exceeds the period of permissible delay, and established necessary and sufficient conditions for the unique optimal replenishment interval. Ho et al (2008) proposed an integrated inventory model with retail price sensitive demand and trade credit financing. Chen and Kang (2010) developed integrated models with permissible delay in payments for determining the optimal replenishment time interval and replenishment frequency. There are many relevant articles related to trade credit, including Goyal (1985), Dave (1985), Mandal and Phaujdar (1989), Aggarwal and Jaggi (1995), Hwang and Shinn (1997), Jamal et al (1997), Liao et al (2000), Sarker et al (2000), Teng (2002), Huang (2003), Chang and Teng (2004), Chung and Liao (2004), Ouyang et al (2005), Teng et al (2005) and Chang et al (2009a) and
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