The optimal retailer's ordering policy under two levels of trade credit with partial payment financing to its customers

Abstract

This study investigates the relationships among supplier, retailer and customer under two levels of trade credit and tries to find an optimal ordering strategy from retailer's standpoint. An inventory model has been established for a retailer who receives a full trade credit from its supplier, and offers a trade credit with due date and a partial payment (down payment) to its customers. In most researches relevant to trade credit, the payment method reveals that retailer pays off all units sold and keeps the profits for other uses. This paper, however, establishes the other payment method to make the model more practical, that is, the retailer pays off the amount owed to the supplier whenever the retailer has money obtained from sales. This paper generalizes Huang & Hsu's (2008) inventory model with retailer partial trade credit policy in supply chain under the other payment method to calculate the optimal cycle time, the annual total relevant cost, and optimal order quantity. Finally, a thorough sensitivity analysis is executed to investigate how various parameters affect results, and several research suggestions are demonstrated to facilitate further exploration in this topic.