Retailer’s optimal replenishment decisions with credit-linked demand under permissible delay in payments

Abstract

Abstract Usually it is assumed that the supplier would offer a fixed credit period to the retailer but the retailer in turn would not offer any credit period to its customers, which is unrealistic, because in real practice retailer might offer a credit period to its customers in order to stimulate his own demand. Moreover, it is observed that credit period offered by the retailer to its customers has a positive impact on demand of an item but the impact of credit period on demand has received a very little attention by the researchers. To incorporate this phenomenon, we assume that demand is linked to credit period offered by the retailer to the customers. This paper incorporates the concept of credit-linked demand and develops a new inventory model under two levels of trade credit policy to reflect the real-life situations. An easy-to-use algorithm is developed to determine the optimal credit as well as replenishment policy jointly for the retailer. Finally, numerical example is presented to illustrate the theoretical results followed by the sensitivity of various parameters on the optimal solution.