Inventory policy for deteriorating items under trade credit when time of payment is uncertain

Abstract

In this paper, an inventory system with a trade credit policy when payment point is not deterministic in nature is studied for deteriorating items. Under trade credit policies, the retailers have to pay at trade credit point or at a predetermined point. In practice, it is not always possible for a retailer to strictly adhere to the same payment policy every time, may be because of uncertainty of cash in hand at respective time points or for other reasons. The optimal policies are derived by taking the possibility of not making the payment in a single point every time into consideration. Two scenarios of the policies of the supplier’s conditions are considered for which retailer may respond in different ways. Three types of retailer’s response are considered in this paper. Depending on payment pattern specific to a retailer a probability distribution for the duration of payment delay is incorporated. For all these situations the expected net present value of the total cost is derived and hence optimal policies are determined. These models are illustrated through numerical examples. The sensitivity analysis is carried out with respect to various parameters. The total costs which are optimally obtained give the actual expected cost and hence minimize budgetary variance.