Ordering policies for non-instantaneous deteriorating items under hybrid partial prepayment, partial trade credit and partial backordering

Abstract

In this paper, an economic order quantity model is presented for non-instantaneous deteriorating items under a hybrid payment schedule. This payment schedule is composed of a multiple advanced payments scheme and a delayed payment plan. Here, a retailer must prepay a portion of the purchasing cost to his supplier, during the lead time of order delivery, in several instalments. The retailer is allowed to pay the rest after a certain amount of time from receiving the order. The first policy may be adopted by the supplier to finance the procurement of materials or parts used to prepare the order, or to control the risk of order cancellation; and the second policy may be employed as a marketing strategy to stimulate sales. On the other hand, the retailer sells the products to his customers. For the proposed model, inventory shortage is also taken into account, which may occur as either backordered and lost sales, or both. The retailer’s total inventory costs (including the costs of ordering, purchasing, inventory holding, shortage and also the interest costs incurred for advance payment and delayed payment) is minimised, in order to find the order and shortage quantities. Several numerical examples are presented for demonstrating the applicability of the framework. Finally, in order to provide managerial insights, sensitivity analyses are performed for several key parameters.