EPQ Policies Considering the Holding Cost of Raw Materials under Conditions of Two-Level Trade Credit and Limited Storage Capacity

Abstract

The economic production quantity model is widely used as a decision making tool. However, climate change and energy supply instability have raised the transport costs of raw materials, thereby affecting production costs. Therefore, this paper presents a new model that considers the holding costs of raw materials under conditions of two-level trade credit and limited storage capacity. Four theorems are developed to characterize the optimal solutions according to a cost-minimization strategy. Finally, a sensitivity analysis is executed to investigate the effects of the various parameters on ordering policies and the annual total relevant costs.