Optimal retailer's inventory policy under two-level trade credit and two-level storage

Abstract

This paper modifies the assumptions of the classical economic order quantity (EOQ) to two-level trade credit and two-level storage. That is, we assume that the supplier would offer the retailer a delay period and the retailer also adopts the trade credit policy to stimulate his customer demand to develop the retailer's replenishment model under the retailer' storage capacity is limited. It is common practice in most inventory systems to hold excess stocks in a rented warehouse (RW) whenever the storage capacity of the owned warehouse (OW) is insufficient. Under these conditions, we model the retailer's inventory system and three effective theorems are developed to efficiently determine the optimal cycle time for the retailer. Finally, numerical examples are given to illustrate these theorems and the managerial insights from these numerical examples are also obtained.