Retailer’s credit and inventory decisions for imperfect quality and deteriorating items under two-level trade credit

Abstract

The classical inventory model considers that products that are produced meet specified standards. However, some products in a lot may not meet defined standards but can be sold at a discount. The variation in the quality of products may arise due to randomness in production systems. The present research explores the effects of deterioration and trade credit policy on inventory control of imperfect quality items. In the current study, the authors develop a two-warehouse based inventory control model that studies deterioration in quality and two-level trade credit. The authors analytically find the lot size that optimizes total profit per cycle. Further, the differential based calculus method is used to determine the optimal solution. To further study the behaviors and real-life applications of the proposed inventory model, a numerical case problem has been solved and performed a comprehensive analysis. The result for presented examples indicates that combining trade credit policies with imperfect quality items in the presence of deterioration leads to savings in the supply chain. The suggested inventory control model is a generalized framework as it involves several existing inventory models.