Retailer’s ordering policy for demand depending on the expiration date with limited storage capacity under supplier credits linked to order quantity and discounted cash flow

Abstract

ABSTRACT Many products deteriorate with time and have a maximum lifetime. An expiration date will be marked. And then the product will no longer be sold after the expiration date. Thereafter, the demand rate for the deteriorated item will near zero as its expiration date is due. Thus, to consider the demand rate incorporates with the expiration date is practical. Furthermore, as the storage capacity is limited, the retailer needs to rent a warehouse to store the excess quantities than can be stored. Consequently, to consider a two-warehouse inventory model is necessary. Nowadays, the supplier often provides a cash discount or permissible delay in payments to its retailers, if the order quantity attains a certain amount. Likewise, the retailer also provides a downstream trade credit period to his customers. In addition, the cost is usually affected by the present value of time. For these reasons considered, a supplier-retailer-customer chain model here is established. The main task of this research is to find the optimal replenishment cycle and order quantity to keep the present value of the total relevant cost per unit time as minimum as possible. Numerical examples are performed for illustration and sensitivity analysis on the expiration date is conducted.