The retailer's procurement policy with credit-linked demand under inflationary conditions

Abstract

The one-stage credit policy is a situation that arises, under a permissible delay in payments, when the supplier offers a credit period to the retailer, but the latter does not offer any credit period to his/her customers. However, this type of credit policy is debatable in most business transactions. In reality, the retailer also adopts the credit policy to stimulate his/her own demand. Such a situation, where both the supplier and the retailer offer the credit period to their respective customers, is termed two-stage credit policy. Moreover, nowadays it is a well-known fact that the credit period offered by the retailer to the customers has a positive impact on the demand of an item. Keeping this in mind, a credit-linked demand function has been considered. Further, the inflation and time value of money also play a very vital role in determining the procurement policy of the retailer, specifically in developing countries. Based upon these arguments, the present paper addresses the retailer's procurement policy, where the decision is influenced by the inflation and time value of money under a permissible delay in payments, for a credit-linked demand function. The main objective is to maximise the retailer's profit by jointly optimising his credit as well as the procurement period. Results have been illustrated with the help of a numerical example. Computational results provide some interesting policy implications.