Retailer's optimal replenishment policy under cash discount and trade credit linked to order quantity

Abstract

This paper develops a model to investigate the optimal retailer's replenishment decisions when the supplier provides cash discount and delay in payments if the retailer's order quantity is greater than or equal to a predetermined quantity, and the retailer adopts the trade credit policy to stimulate his/her customer. Under these assumptions, we model the retailer's inventory system as a profit maximisation problem. Then, we establish an algorithm to locate the optimal replenishment cycle time for the retailer. Furthermore, numerical examples are presented to illustrate the results of the proposed model. Based on our analysis, it is found that the predetermined order quantity could be a successful strategy for the supplier to encourage the retailer to order large quantity and it should be set carefully since the retailer may decide not to order a quantity greater than the threshold to obtain delayed payments if the predetermined order quantity is too high.