Optimal inventory policies for deteriorating items with expiration date and dynamic demand under two-level trade credit

Abstract

In this paper, we build an inventory model for deteriorating items with expiration time which incorporates both quantity and quality losses under two-level trade credit. The demand is dynamic and varies simultaneously with the length of credit period offered to customers and product freshness condition. In addition, the risk of default increases with the credit period length. First, we investigate the retailer’s inventory system for deteriorating items as a profit maximization problem to determine the optimal inventory policies. In order to obtain the optimal ordering policies, we propose some lemmas to help the retailer in accurately and quickly determine the optimal replenishment decisions under maximizing the annual total profit. Finally, we have used some numerical examples to illustrate the proposed models and study the sensitivity analysis on the optimal solution with respect to each parameter and provide some managerial insights.