Optimal Retailer’s Inventory Policy Under Supplier Credits Linked to Retailer Payment Time

Yung-Fu Huang,Kuang-Hua Hsu

doi:10.3390/mca12020077

Yung-Fu Huang, Kuang-Hua Hsu

Open Access

https://doi.org/10.3390/mca12020077

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Abstract

This paper wants to investigate the retailer’s optimal cycle time and optimal payment time under supplier credits including conditionally permissible delay in payments and cash discount depending on retailer payment time. That is, the retailer can obtain fully permissible delay in payments and cash discount if the payment is paid before the period of full delay payments permitted by the supplier. Otherwise, the retailer will just obtain partially permissible delay in payments within the period of partial delay payments permitted by the supplier. The supplier uses this policy to attract retailer to pay the payment as soon as possible to shorten the collection period. One theorem is developed to efficiently determine the optimal replenishment and payment policy for the retailer.

Highlights

The traditional EOQ (Economic Order Quantity) model assumes the payment for the quantity ordered is made when the quantity is received
Chang et al [3] and Chung and Liao [6] deal with the problem of determining the economic order quantity for exponentially deteriorating items under permissible delay in payments depending on the ordering quantity
We assume that the retailer can obtain fully permissible delay in payments and cash discount if the payment is paid before the period of full delay payments permitted by the supplier

Summary

INTRODUCTION

The traditional EOQ (Economic Order Quantity) model assumes the payment for the quantity ordered is made when the quantity is received. Chang et al [3] and Chung and Liao [6] deal with the problem of determining the economic order quantity for exponentially deteriorating items under permissible delay in payments depending on the ordering quantity. The supplier uses the credits policy depending on payment time to attract the retailer to pay the payment as soon as possible to shorten the collection period. Under this condition, we model the retailer’s inventory system as a cost minimization problem and prove one theorem to efficiently determine the retailer’s optimal replenishment and optimal payment policy

MODEL FORMULATION

The model

DECISION RULE OF THE OPTIMAL CYCLE TIME T*

NUMERICAL EXAMPLES

CONCLUSIONS