Abstract
This paper develops an inventory model under two levels of trade credit policy by assuming the demand is a function of credit period offered by the retailer to the customers for deteriorating items using discounted cash flow (DCF) approach. Mathematical model is then developed to determine the optimal replenishment policy for the retailer. Next, we show that the total annual cost per unit time is a convex function of cycle time. We then provide an algorithm to find the optimal solution. We use numerical example to illustrate the algorithm. Finally, sensitivity analysis of the optimal solution with respect to the parameters of the system and some managerial implications are provided.
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