Optimal retailer's ordering policy with deteriorating items under twolevel trade credit

Abstract

In practice, in the supply chain there are two levels of trade credit: one is offered to the retailer from its supplier; the other is offered to the customer from its retailer. Moreover, the commodity under consideration usually deteriorates over time. The present study therefore proposes a retailer's EOQ (economicorder quantity) model by considering deteriorating items under two-level trade credit. The proposed model takes into account both levels of trade credit. In the first place, the authors model the retailer's inventory decision as a cost minimization problem. Secondly, the authors prove the convexity of the inventory function in terms ofrelevant annual costs. The authors then move on to construct an easy-to-use theorem to efficiently determine the optimal replenishment cycle, hence, the optimal order quantity. Finally, the authors provide several numerical examples to illustrate the theorem and to conduct a sensitivity analysis. Based on the proposedmodel, theauthors conclude that a longer replenishment cycle (a larger order quantity) is directly related to a higher ordering cost, and, is inversely related to a higher deteriorating rate.