Optimality of Cycle Time and Inventory Decisions in a Two Echelon Inventory System under Credit Period

Abstract

In the present day scenario of business competition, it has become customary of providing trade credit by the manufacturer to the retailer as part of enhancing the sales turnover. When a manufacturer offers credit period to the retailer, the retailer need not to pay the manufacturer immediately. Under this particular phenomenon, it is essential to analyze the overall performance of the supply chain in terms of cycle time, inventory levels, shipment frequency and the annual total relevant cost of the entire supply chain. In this paper, a mathematical model is developed for a two-echelon inventory system comprising of a single manufacturer supplying a single kind of product to a single retailer. The main objective of the proposed work is to demonstrate the optimality of cycle time, inventory levels, shipment frequency and the total relevant cost of the coordinated supply chain under the novel idea of trade credit. A numerical illustration is carried out with the help of a numerical example and also the sensitivity analysis is carried out.