The optimal inventory policies for the economic order quantity (EOQ) model under conditions of two levels of trade credit and two warehouses in a supply chain system

Abstract

An inventory problem involves a lot of factors influencing inventory decisions. To understand it, the traditional EOQ model plays rather important role on inventory analysis. Although the traditional EOQ models are still widely used in industry, practitioners frequently question validities of assumptions of these models such that their use encounters challenges and difficulties. So, this paper tries to present a new inventory model by considering two levels of trade credit and two warehouses together to relax the basic assumptions of the traditional EOQ model to improve the environment of the use of it. Keeping in mind cost-minimization strategy, three easy-to-use theorems are developed to characterize the optimal solutions. Finally, the sensitivity analysis is executed to investigate the effects of the various parameters on ordering policies and the annual total relevant costs of the inventory system. Key words: Economic order quantity (EOQ), permissible delay in payment, trade credit, two warehouses, supply chain system.