The impact for retailer’s policy in supply chain system under trade credit and quantity discounts

Abstract

This paper develops a powerful retailer inventory model under trade credit and quantity discounts in which the retailer’s order quantity is calculated for each setup and shipped in equal lots over multiple deliveries. Furthermore, the trade credit condition is that the retailer must make partial payments in cash for a given number of sub-shipments, with the remaining balance paid in trade credit time that expires after the inventory is depleted. This integrated powerful retailer supply chain model has not yet been discussed in previous supply chain coordination systems literature. We propose an annual total cost function and properties and develop theorems to illustrate that a unique optimal solution minimizes the relevant cost per year. We also develop an efficient algorithm to determine the optimal set of the replenishment time and the number of shipments. Numerical examples are provided to demonstrate the proposed model and algorithm. A sensitivity analysis is explored to examine the effects of four important parameters (i.e., setup cost, unit holding cost, interest rate, and receiving cost) on the optimal strategy. Finally, managerial insights are drawn.