The inventory models under conditional trade credit in a supply chain system

Abstract

In several recent investigations dealing with the economic order quantity with permissible delay in payments, the following assumptions are made:(A) The supplier always offers the retailer fully permissible delay in payments independent of the order quantity.(B) The annual interest Ik which is charged per dollar in stocks by the supplier is higher than the annual interest Ie earned on investment per dollar.(C) The unit purchase cost c is the same as the selling price s per unit. Huang [1] generalizes the concept of fully permissible delay in payments by advocating that the supplier would offer the retailer partially permissible delay in payments where the order quantity is smaller than a predetermined quantity to relax the assumption (A). Motivated essentially by Huang’s work [1], the main purpose of this paper is twofold as stated below:(P1) This paper will extend Huang’s work [1] by establishing new inventory models without having the assumptions (B) and (C) to match the real world situation.(P2) This paper will present new solution procedures different from those of Huang [1]. Among other things, these new solution procedures will show that those of Huang [1] will cause misuses under some circumstances. Several numerical examples illustrate the fact that the percentages of the cost penalty (PCP) of misuses are terribly high in some cases.